21/4/16: Drama & Comedy Back: Grexit, Greesis, Whatever

Back in July last year, I wrote in the Irish Independent about the hen 'latest' Greek debt crisis: http://www.independent.ie/opinion/comment/expect-a-harder-default-for-greeks-and-less-democracy-for-the-rest-of-us-31368677.html. Optimistically, I predicted that a full-blown crisis will return to Greece in 2018-2020, based on simple mathematics of debt maturities. I was wrong. We are not yet into a full year of the Greek Bailout 3.0 and things are heading for yet another showdown between the Three-headed Hydra the inept Greek authorities, the delusional Germany, and the Lost in the Woods T-Rex of the IMF.

Predictably, IMF is still sticking to its Summer 2015 arithmetic: Greek debt is simply not adding up to anything close to being sustainable: an example of the rhetoric here. Meanwhile, the FT is piping in with a rather good analysis of the political dancing going on around Greece: here. The latter provides a summary of new dimensions to the crisis:

1. Brexit
2. Refugees crisis

But there is a kicker. Greece is now in a primary surplus: latest Eurostat figures put Greek primary balance at +0.7% GDP for 2015, well above -0.25% target. And Greek Government debt actually declined from EUR320.51 billion in 2013 to EUR319.72 billion in 2014 and EUR311.45 billion in 2015. This can and will be interpreted in Berlin as a sign of 'improved' fiscal performance, attributable to the Bailout 3.0 'reforms' and 'assistance'. The argument here will be that Greece is on the mend and there is no need for any debt relief as the result.

Still, official Government deficit shot from 3.6% of GDP in 2014 to 7.2% in 2015. Annual rate of inflation over the last 6 months has averaged just under -0.1 percent, signalling continued deterioration in economic conditions. Severe deprivation rate for Greek population rose to the crisis period high in 2015 of 22.2 percent, up on 21.5 percent in 2014. Industrial production on a monthly basis posted negative rates of growth in January and February 2016, with February rate of contraction at -4.4% signalling a disaster state, corresponding to 3% drop on the same period 2015. Volume of retail sales fell 2.2% y/y in January marking fourth annual rate of contraction in the last 5 months. Unemployment was 24% in December 2015 (the latest month for which data is available), which is down from 25.9% for December 2014, but the decline is more likely than not attributable to simple attrition of the unemployed from the register, rather than any substantial improvement in employment.

In simple terms, Greece remains a disaster zone, with few signs of any serious recovery around. And with that, the IMF will have to continue insisting on tangible debt relief from non-IMF funders of the Bailout 3.0.

It is a mess. Which probably explains why normally rather good Washington Post had to resort to a bizarre, incoherent, Trumpaesque coverage of the subject. This, https://www.washingtonpost.com/news/wonk/wp/2016/04/20/the-crazy-reason-we-might-be-facing-a-huge-crisis-in-greece-again/, in the nutshell, sums up American's disinterested engagement with Europe. 

Enjoy. Grexit is back for a new season to the screens near you. And so is Greesis - that unique blend of fire and ice that has occupied our newsflows for 6 years now with high drama and some comedy.

14/7/15: Ifo Sinn: Euro Agreement Doesn’t Really Help Greece

Ifo's Hans Werner Sinn on Monday Eurogroup and Euro Council agreements:

You can sense his frustration.

I can add that much of what is said above makes sense, although I do not think temporary Grexit is feasible. A normal, EU-facilitated Grexit with no timing terms attached is.

14/7/2015: And the Greek Debt Merry-Go-Round Spins & Spins...

In the latest world of EUlunacy, we have some interesting 'developments' on the Greek crisis front.

First up, this: per Irish Finance Minister Noonan, 'Greesolution' agreed Monday am will have 'no budgetary implications' for Ireland, although Ireland 'will be taking on new liabilities'.

Translated into Human language this means: no official increase in Government deficit, but new debt will be issued by Ireland to fund Greek bailout.

Using ESM key, our share of EUR86 billion bailout will be ca EUR1.41 billion. It might be slightly less or slightly more, depending on a range of factors.

But the point is simple: pre-Monday agreement, Ireland had two choices:

Choice 1: support Greek debt write downs. Which would have cost us the same EUR1.41 billion at most, but would have achieved a reduction in Greek debt. Alternatively, if it was structured via monetary financing (ECB-monetised write down) it could have cost us (and rest of EU) virtually nothing (the cost would have been carried out via ECB simply writing down its own assets and liabilities - a balance sheet exercise).

Choice 2: current agreement-envisioned new loans for Greece - which will require all euro area states chipping in to fund the bailout and thus will require Ireland borrowing funds in the markets, increasing our debt, and giving them as loans (more debt) to the already over-indebted Greece.

Minister Noonan et al opted for Choice 2 but claim there will be no cost to Ireland from doing so (presumably because assuming more debt is costless to the Minister). You judge…

Meanwhile, the FT published this handy graphic explaining where the money borrowed by Ireland et al and given as debt to Greece will be used:

Source: FT

• EUR29.7 billion of cash to be loaned to Greece will go to pay down the money borrowed by Greece under the privies EU lending schemes so that a merry-go-round of European policymaking can spin and spin. 
• EUR25 billion will go to the banks to cover damages done by previous merry-go-round schemes. 
• EUR17.2 billion will pay interest on past and current merry-go-round schemes. 
• EUR7.7 billion will go to the banks to cover potential runs by depositors scared of the merry-go-round schemes. 

In total, all but miserly EUR7 billion of new loans to Greece will go one way or the other to sustain unsustainable old loans.

My brain aches from European leaders' insistence on staying oblivious to the reality, my heart ache for European people forced to sustain this oblivion.

13/7/15: A Promise of a Deal = An Actual Surrender

So we finally have a 'historic' agreement on Greece. You know the details:

1. Tsipras surrendered on everything, except one thing.
2. One thing Tsipras 'won' is that the assets fund (to hold Greek Government assets in an escrow for Institutions to claim in case of default) will be based in Greece (as opposed to Luxembourg), managed still by Troika (it remains to be seen under which law).
3. IMF is in and is expected to have a new agreement with Greece past March 2016 when the current one runs out. So not a lollipop for Tsipras to bring home.
4. All conditionalities are front-loaded to precede the bailout funding and Wednesday deadline for passing these into law is confirmed. 

Bloomberg summed it up perfectly in this headline: EU Demands Complete Capitulation From Tsipras.

Remember,  Tsipras went into the last round of negotiations with the following demands:

Source: @Tom_Nuttall

And that was after he surrendered on Vat, Islands, pensions, corporation tax - all red line items for him during the referendum.

Reality of the outcome turned out to be actually worse. 

The new 'deal' involves a large quantum of debt (EUR86 billion, well in excess of Greek Government request from the ESM) and the banks bailout funding requirement has just been hiked from EUR10-25 billion to 'up to EUR50 billion', presumably to allow for some reductions in ELA. 

The new 'deal' only promises to examine debt sustainability issue. There are no writedowns, although Angela Merkel did mention that the plan does not rule out possible maturities extensions and repayment grace period extensions. This, simply, is unlikely to be enough.

The 'deal' still requires approval of the national parliaments. Which can be tricky. Here is the table of ESM capital subscriptions by funding nation:

Tsipras also lost on all fronts when it comes to privatisations. In fact, even if the future Government lags on these, the EU can now effectively cease control over the assets in the fund and sell these / monetise to the fund itself. Not sure as per modalities of this, but...

Detailed privatisation targets are to be re-set. Let's hope they will be somewhat more realistic (home hardly justified in the context of the new 'deal'):

To achieve this, EU had to literally blackmail Tsipras by rumour and demands:

Source: @TheStalwart

Source: @Frances_Coppola

And so the road to the can kicking (not even resolution) is still arduous:

 Source: @katie_martin_fxs

My view: the crisis has not gone away for three reasons:

1. Short-term, we are likely to see new elections in Greece prior to the end of 2015;
2. We are also likely to see more disagreements between the euro states and Greece on modalities of the programme; and
3. Crucially, over the medium term, the new 'deal' is simply not addressing the key problem - debt sustainability. 

For the fifth year in a row, EU opts for kicking the same can down the same road. 

12/7/15: Instead of Abating, Greek Crisis Just Accelerated

Per latest reports, Eurogroup estimates Greek funding needs at EUR82-86 billion - a far cry from EUR53.5 billion requested from ESM. EUR10-25 billion needed for banking sector (because bailing out European states must always involve bailing out banks).

In order to continue funding discussions, Greece is required to pass the following 12 measures before Wednesday:

Source: @eurocrat 

The list is at best - silly:

• Measures 1-3, and 6 are effectively MOU for a bailout, but without an actual bailout commitments;
• Measures 4,  7-9, and 11 require significant time to properly draft, let alone implement;
• Measure 12 is senile - no one has ejected Institutions from Athens (they don't require a visa to travel there);
• Measures 5 and 10 are pro-forma.

Can anyone seriously expect any Government addressing the issues of banks recapitalisation and recovery, plus the issue of non-performing loans within a span of 3 days?

Besides all of this, the key point is that the 12 measures outlined effectively fully and comprehensively pushes Greece into worse adjustments package than anything put forward prior to the Greek referendum. And all this achieves is... brings Greece back comes Wednesday to face more negotiations over additional measures. 

Below are the four pages of key document from the Eurogroup

Source: @giopank

Alternative link to same: http://www.real.gr/DefaultArthro.aspx?page=arthro&id=432281&catID=22

Items that were not agreed upon are in the brackets. These include: nominal debt haircuts.

There is also a proposed escrow 'company' to hold EUR50 billion of Greek assets as collateral (titles to state properties) in Luxembourg (which is neither enforceable, nor serious). 

In simple terms, Greek choice is now stark and simple: accept complete control over the economy and assets from Brussels/Frankfurt or 'temporary' Grexit for 5 years with possible haircuts to debt. Germany et al just accelerated the crisis... next move: Greece.

11/7/15: Harder Default for Greece, Less Democracy for All

My article on the Greek crisis for Irish Independent: impossible mathematics of debt and the political trilemma of sacrificed democracies: http://www.independent.ie/opinion/comment/expect-a-harder-default-for-greeks-and-less-democracy-for-the-rest-of-us-31368677.html

10/7/15: New Greek Proposals: Can + Foot ≠ Real Solution

Greek Government proposal to the EU on Bailout package 3.0 have been published here: http://www.naftemporiki.gr/finance/story/976680/the-greek-reform-proposals.

Quick read through suggests the following:

• These proposals are pretty much in line with June 26th proposals that were subsequently rejected by the 'No' vote in the Greek referendum;
• The 'new' proposals appear to be a complete climb down from the Greek Government counter-proposals on key areas of VAT, pensions and islands measures;
• One key strategic point is that the new proposal accepts fully 'prior actions' principle of putting in place legislative backing for key early measures ahead of any bailout funds disbursal;
• The 'new' proposals submitted to Institutions contain no reference to debt sustainability and debt relief, although it appears that a preamble to the document in Greek version does mention debt relief.  There are reports also that Greek proposals sent to the Parliament contain reference to the EU commitment to 'negotiate with Greece on the issue of debt sustainability post-2022'. Which, if true, is a dead giveaway, as no one will honour any commitments on such a time scale and absent any specific conditions on debt sustainability. 2022 is the year chosen because it is when EFSF repayments start. Most expensive debt to carry for Greece - IMF and ECB - is off limits for any restructuring under this timeline;
• Crucially, the new proposal does not address in full how Greek banks ELA will be covered, and how the arrears to IMF will be covered. Neither does it explain how July 2015 debt repayments will be financed. This, jointly, means that the EUR53.5 billion request for new loans is not sufficient. The Institutions, most likely, will ask for a deposits bail-in. 
• The only differences to the 'old' Institutions' proposals include: smaller cut in defence budget (EUR200mln instead of EUR400mln), slower phasing out of the islands reduced VAT rates (throughout 2016) and slower phasing out of the EKAS supplement on pensions.
• Greek proposals contain a sub-clause of defined actions that will kick in automatically if fiscal targets are not met in the future. These include hikes on income tax for those earning EUR12,000 (2 percentage points to 35%).
• Materially, the new 'proposal' involves EUR53.5 billion in new loans via ESM (ex-IMF): http://bigstory.ap.org/article/0743c14d12d34ea38d1043b5dbcdfba5/latest-eu-economics-chief-says-greece-deal-possible. IMF porgramme runs through April 2016 and, presumably, Bailout 3.0 is going to happen via ESM alone. Which is a net negative for Greece, since it will lose its only support on debt writedown side.

These are the details so far.

My view is that this proposal will probably be acceptable to the EU, which will close its eyes on two glaringly obvious things:

1. The proposal from the EU on which this current Greek counter proposal is based was based on assumptions and estimates that are at least 3 weeks old, and for some figures - older. Economic and fiscal losses since then have been significant and most likely remain un-covered by the current Greek proposal. These losses will not be terminated immediately post-agreement, so the Greeks have a much more serious problem on their hands.

2. Most importantly, the Greek proposal does nothing to address the existent debt overhang - the one that the IMF believes cannot be addressed via enhanced 'reforms' and increased 'austerity' and requires debt haircuts. 

However, I suspect that since avoiding Grexit is now clearly Greek Government priority, and since doing the same always was and remains the EU priority, both sides will ignore the discomforts of reality. In this case, under the Bailout 3.0, Greek debt will rise (once again), Greek economy will get a negative shock of higher taxation (corporate, personal and indirect), and a large number of Greek voters will get a strong sense of having been cheated out of their 'No' votes. And then there is the risk of looming deposits bail-ins...

This can kicking will not last long...

8/7/15: Latest Round of Greece Talks: Smoke, Fire, Grexit

Summit / Eurogroup takeaways:

1. No progress of any variety beyond the usual agreement to have more talks
2. Short term deal 'weighing in' for Sunday is rumoured - effectively a bridge loan based on Greek acceptance of pre-referendum proposals. One of proposals involved a 3-4 months long bridge financing deal (Bailout 2.1) followed by 3-4 year deal (Bailout 3.0). This was rejected by Finland.
3. Any 'possible' new deal being discussed is 2-3 years in duration - a can kicking of weak variety, in other words.
4. No haircuts on debt will be allowed.
5. Sunday - full EU heads summit (not euro alone), which indicates something serious brewing - at least in terms of applying pressure on Tsipras. Also, possible Grexit push. Summit can be 'avoided' if Greece presents an acceptable plan on Thursday. Decision to be finalised on Saturday.
6. Overall, Bailout 3.0 package of measures is now being pushed out to tougher conditionality for Greece than in previous talks.
7. Juncker stated that the EU Commission has prepared a detailed Grexit plan, inclusive of humanitarian aid. Juncker plan also includes balance of payments support scheme for non-euro states with big exposures to Greek banks: Bulgaria, Romania. Big questions are also about Macedonia and Serbia.
8. At least in theory (detailed theory per Juncker) we have the end of 'irreversibility' of the euro (for now - at single state level).
9. IMF is back in the Troika 'Institutions' pairing.
10. No parallel currency discussions - left to Finance Ministers discussions.

My take: Overall, Greek position is now nearly toast. Contrary to many expectations, a No vote did not produce a stronger playing hand for Greece. Possibly because Tsipras failed to deliver any new proposals. Sunday EU Council would be required for a treaty change. This implies two possibilities: haircuts (ruled out) or Grexit. We are leaning toward Grexit, heavily.

The acceleration in Eurogroup and council demands on Greece suggests that prior to the Referendum there was already a strong consensus that Grexit is the preferred direction for further talks.


Serious sidelines:

Italy position is optimistic on the deal, but no debt relief in sight. Still remains hard-line on Greece.

Merkel takes harder stance than anyone else: strikes down bridge agreement: "Bridge financing didn't play any role in our talks tonight." Stance on conditions: "The proposals we are expecting now encompass what we put forward for second programme plus more for third programme." Haircuts: "A haircut is not up for debate. That is a bailout under the treaties and that will not happen." Merkel isn't even keen on discussing ESM programme resumption. Tougher thing still: "The situation has become much worse. I have to take 3rd programme proposals to Bundestag - hence need detail." Which means serious hurdles to cover here.

France is the lead in Greek side support and Hollande is not impressed: "It is true that if there were no agreement, the situation would be serious. Other options would have to be sought."

Spain's Rajoy "New Greek programme will have conditions attached. Will have to be approved by institutions, then Eurogroup, then leaders". Meaningless, surprisingly.

Donald Tusk: "Our inability to find an agreement may lead to the insolvency of Greece and the bankruptcy of its banking system". Says the Greek government is to present its proposals by Thursday, July 9. Juncker put deadline at 8:30 am Friday, July 10. So lots of confusion.

Finland: ruled out Bailout 3.0 for Greece on any terms.

Belgium: Finance Minister Van Overtveldt: "very disappointed" by today's Eurogroup meeting. New Greek Finance Minister made "very good explanation" of situation, but "had no new proposals to show us". "I had the strong impression that everybody really feels the sense of urgency, except the Greek government." His boss: Belgian PM Michel: has “more and more difficulty to understand the logic of Tsipras. On the one hand he says 'we want to stay in the eurozone'. On the other hand, he's not taking any initiative, zero, nothing, to stay in the eurozone.”

Lastly - a link worth reading: http://www.capx.co/the-eurocrats-are-punishing-greece-to-scare-other-countries/

7/6/15: Greece Needs a Structured Euro Exit: Sinn

As the saying goes... can't have a Greece drama without Target 2 drama... Hans Werner Sinn on Greek referendum results:

In simple terms: make Grexit. As this stage int the game, I agree - facilitated (using European financial and investment supports) exit by Greece from the euro area is the optimal resolution path to the crisis.

The arguments about new costs are irrelevant: Greek debts are currently unrepayable and will not be made good by any structural reforms. In fact, the debts are holding back the effectiveness of such reforms and will likely wipe out all and any benefits of devaluation that can be gained from conversion into drachma. Whether Greece remains in the euro area or exits, either path will require a write-down of more than 30% of Greek Government debt (my estimate - at least EUR125 billion, in line with recent IMF estimate, although my estimation is higher, since the IMF assessment was prepared prior to the Greek economy deteriorating further and the country fiscal position weakening beyond April 2015 assessments) and some additional assistance (in form of investment funds from the EU) to the tune of EUR20-30 billion over 3 years.

The write-downs should be carried out via ECB and monetised as a part of the ECB QE (wiping out the losses) so the only new call on EU funds will be investment funding. Drachma return will have to be used to carry out immediate fiscal adjustment (so there will be plenty of pain and reforms on that front).

Chart below (source: Open Europe) shows the breakdown of Greek debt by holding:

Ex-IMF official sector holdings are at 68%. IMF should, by all possible metrics, take a bath too, but it won't, so the 9% of the total liabilities held by the IMF is not at play. Banks can take a haircut, but that will require recaps (Greek banks) and/or is utterly immaterial in quantum of debt held (1% for Foreign Banks). Other bonds above are predominantly short-term stuff that can be haircut. No matter how you spin the numbers - Eurozone holdings will have to be cut by more than a half.

5/7/15: Votes are in... What's next for Greece?

With over 75% of votes counted in the Greek referendum, 61.6% of the votes counted are in favour of 'No'.

So what's next? Or rather, what can [we speculate] the 'next' might be?

Possible outcome: Grexit

• This can take place either as a part of an agreement between Greece and Institutions (unlikely, but structurally less painful, and accompanied by debt writedowns, a default or both), or
• It can take place 'uncooperatively' - with Greece simply monetising itself using new currency (more likely than cooperative Grexit, highly disruptive to all parties involved and accompanied, most likely, by a unilateral/disorderly default on ECB debt, IMF debt, EFSF debt and Samurai debt. Short term default on T-bills also possible).

Either form of Grexit will be painful, disruptive and nasty, with any positive outcome heavily conditional on post-Grexit policies (in other words, major reforms). The latter is highly unlikely with present Government in place and in general, given Greek modern history.

Grexit - especially disorderly - would likely follow a collapse of the early efforts to get the EU and Greece back to the negotiating table. Such a collapse would take place, most likely, under the strain of political pressures on EU players to play intransigence in the wake of what is clearly a very defiant Greek stance toward the EU 'Institutions' of Troika. 

Key to avoiding a disorderly / unilateral Grexit will be the IMF's ability to get European members of the Troika to re-engage. This will be tricky, as IMF very clearly staked its own negotiating corner last week by publicly identifying its red-line position in favour of debt relief and massive loans package restructuring. The EU 'Institutions' are clearly in the different camp here.

EU Institutions will most likely offer the same deal as pre-referendum. Greece will be 'compelled' to accept it by a threat of ELA withdrawal, but, given the size of the Syriza post-referendum mandate, such position will not be acceptable to Greece.  In the short run, ECB can allow ELA lift to facilitate transition to new currency, but such a move would be difficult to structure (ELA mandate is restrictive) and will result in more debt being accumulated by the Greek government that - at the very least - will have to guarantee this increase.

Problem with Grexit, however, is that we have no legal mechanism for this, implying that we might need a host of new measures to be prepared and passed across the EU to effect this.

Which brings us to another scenario: Status Quo

In this scenario - no player moves. We have a temporary stalemate. Greece will be cut off from ELA and within a week will need to monetise itself with new currency. 

Why? Because July 10th there is a T-bill maturing, default on which would trigger a cascade of defaults. Then on July 13th there is another IMF tranche maturing (EUR451 million with interest). Non-payment of either will likely force EFSF to trigger a default clause. Day after, Samurai bonds mature (Yen 20bn) - default here would trigger private sector default. More T-bills come up at July 17th and following that interest on private bonds also comes up on July 19th (EUR225 million). And then we have July 20th - ECB's EUR3.9 billion due, with additional EUR25mln on EIB bonds. Non-payment here will nearly certainly trigger EFSF cross-default.

Most likely scenario here would be parallel currency to cover internal bills due, while using euro reserves and receipts to fund external liabilities. Problem is - as parallel currency enters circulation, receipts in euro will fall off precipitously, leading inevitably to a full Grexit and a massive bail-in of depositors prior to that. Political fallout will be nasty.

Most likely outcome is, therefore, a New Deal

This will suit all parties concerned, but would have been more likely if Greece voted 'Yes' and then crashed the current Government. This is clearly not happening and the mandate for Syriza is now huge. Massive, in fact. 

So there will have to be a climb-down for the EU sides of the Troika. Most likely climb-down will be a short-term bridge loan to Greece (release of IMF tranche is currently impossible) and allowing use of EFSF funds for general debt redemptions purposes. 

The New Deal will also involve climb-down by the Greek government, which will, in my view, be forthcoming shortly after Tuesday, especially if ECB does not loosen ELA noose. 

Bad news is that even if EU side of Troika wants to engage with Greece, such an engagement will probably require approval of German (and others') parliament. Which will require time and can risk breaking up already fragile consensus within the EU. In fact, only consensus building tendency in the wake of today's vote is for a hard stand against Greece. Even in an emergency, EU is very slow to act on developing new 'bailouts' - in Cypriot case it took almost a year to get a deal going. For Portugal - almost 1.5 months. Urgency is on Greek side right now, not EU's, so anyone's guess is as good as mine as to how long it will take for a new deal to emerge.

That said, short-term approach under the status quo scenario above might work, as long as:

1. Greece engages actively, signalling willingness to deal;
2. Greece does not monetise directly via new currency (IOUs will do in the short run); 
3. IMF puts serious pressure on Europe (unlikely); 
4. ECB plays the required tune and keeps ELA going (somewhat likely); and
5. There is no fracturing of the EU consensus (if there is, all bets are off).

In a rather possible scenario, EU does opt for a new deal with Greece, which will likely involve pretty much the same conditions as before, but will rely on removing IMF out of the equation altogether. In this case, EUR28.7 billion odd of Greek debt held by the IMF gets transferred to ESM. The same will apply to ECB's EUR19 billion of Greek debt. The result will be to cut Greek interest costs (carrot), and involve stricter conditionality and cross-default clauses (stick). Euro area 'Institutions' therefore will end up holding ca 73% of all Greek debt in that case. Terms restructuring (maturities extension) can further bring down Greek costs in the short run. 

The negative side of this is that such a restructuring & transfer will be challenged in Germany and Finland, and also possibly in the Netherlands. 

It is. perhaps, feasible, that a new deal can involve conversion of some liabilities held by the euro area institutions into growth-linked bonds (I am surprised this was refused to start with) and/or a direct conditional commitment (written into a new deal) to future writedowns of debt subject to targets on fiscal performance and reforms being met (again, same surprise here). Still, both measures will be opposed by Germany and other 'core' economies. 

Either way, two things are certain: One: there will be pain for Greece and Europe; and Two: there will be lots of uncertainty in coming weeks.

As a reminder of where that pain will fall (outside Greece):
Source: @Schuldensuehner 

3/7/15: Add ECB to IMF and Greek arrears can get ugly...

Ah, remember Brodsky's "Urania is old than sister Clio" bit? Well, not in finance. Apparently, or allegedly, as reported in press, Greece is now in arrears (err... default, or not or whatever) not only on IMF, but also on ECB. See this.

Which relates to 1993 loans, last repayment of which was due in June this year and amounted to EUR470mln. And which were not paid.

The gyrations of Greek and Troika positions are out of the league of the ordinary.

We had a threat to take EU to court over threats of forcing Grexit (see here). Which is quite bizarre (on the EU side), given the Institutions have already said that the very subject of the referendum is non-sensical as no deal exists to carry out referendum over (see here), though such statements did not preclude the EU leaders from calling for a 'Yes' vote in the referendum (see here).

And the EU and some internal Greek concerns about constitutionality of the Greek referendum (see here).

In simple terms, we have a mash of contradictions: a referendum that has no grounds in terms of its outcome is nonetheless of questionable constitutionality, though the voters should vote 'yes' regardless, because, presumably, an outcome that is not an outcome is preferred to a different outcome that is not a outcome... [someone should stop spinning the world around us]...

We also have IMF that was forced (by a leak) to release its (preliminary - aka... "we say so, but we don't say so") analysis of Greek debt sustainability (see simplified version here and full version from the source here). Surprise, surprise... those of us not paid lavish salaries by the IMF turned out to be right: Greek debt sustainability thesis is nonsense, a pipe dream made up of flour, feathers and water...

Meanwhile, the ECB - not to be outdone by the fellow jostlers or jousters - is entering a probabilistic game of guessing Greek banks solvency (condition for accessing ELA is solvency of the banks, which, until today was a concept of 0=insolvent, 1=solvent and is now 0.1%=solvent 49.9%='something of sorts' and the rest... err... well, we await holding our breath for a technical paper from the ECB staff on that one) on the basis of referendum outcome (see here).

Next turn will be for the EU or may be ESM/EFSF as ECB (rumoured above) default trigger for EFSF default is "Very Likely" and can only be 'corrected' for via a new deal agreement (see here).

Have fun deciphering the torrent of news, views and leaks that the Greek crisis has unleashed. In the mean time, the only conclusive statement to be made is that we are in a situation where headless chickens are trying to round up legless lambs... all performed in a quicksand pit...

29/6/15: Greek Options & Default Contagion Mapping

Couple of interesting charts on Greece.

First up: what are the options?

Source: @MxSba

Interestingly Greece already has capital controls, but yet to miss (officially) and IMF payment. Now, even if there is a deal, Greece will still have to go into the arrears on IMF, unless they found that proverbial granny's couch from which they can squirrel away few bob (EUR1.6 billion that is). We also have an already scheduled referendum. Which, according to the chart is a dead-end. Which it is, because its outcome is either rejecting a non-valid deal or accepting a non-valid deal. Though, presumably, the non-valid deal can be revalidated by the Troika (Institutions) in a jiffy.

In short, the chart above doesn't help much.

Now, a default trigger table and a map:

Source: both via @jsphctrl

Non-payment to IMF can trigger (though does not have to) default on EFSF and holdout private sector bonds (pre 2004). Default on T-bills (short term bonds) triggers privately held bonds excluding holdouts and new bonds. Everything else is fairly simple. Now, per table above, we are in the 'Publicly Acknowledged' blue-shaded area (any delay on payment will be known at this stage and avoiding a public declaration will be hard, if not impossible, especially given political stalemate).

• Non-payment to IMF triggers default on EFSF, and likely to trigger default on bilateral EU loans.
• Non-payment of EFSF loans triggers nothing with any certainty.
• The worst contagion is from PSI bonds default. 

Special note to CDS triggers: basically, bigger risks are from SMP (ECB) bonds, PSI (private) bonds, and post-PSI (private) bonds. EU loans and holdouts from PSI bonds are dodos. 

Enjoy playing with the above...

29/6/15: Greece & Grexit: In Europe, what the bank does, the kings say

Couple of interesting items on on Greek crisis:

Bloomberg prints an exercise in extrapolating Greek devaluation to Mexico peso crisis. It is an interesting exercise in so far as it does indicate (imperfectly) one side of the 'pain coin' currently spinning in the air. But it does not provide for any realistic comparatives to the other side of the same coin: the side of Greece not opting out of the euro area. Suppose the estimated path in the Bloomberg chart is correct and Greece, exiting the euro does face a devaluation 'bill' of some 300 percent-odd. As Bloomberg article says, there will be pain. Huge pain. Now, suppose Greece does not opt for direct devaluation. Then what? Then - exactly the same adjustment will have to happen via internal devaluation. Absent inflation (of any significance) in the euro area (and even given the ECB target inflation), this means all of this adjustment will be carried by Greek people. Except, with devaluation and exit, Greece will still retain internal markets for adjustment: with reforms (not guaranteed by any means), and with some pain taken on the side of capital / funding, it might ameliorate the period of post-default devaluation (the 'jump' stage in the chart below). Staying in the euro clearly implies zero adjustment on capital side, with all adjustment on households' side (employment, earnings, pensions etc). In addition, staying with euro implies no imports substitution (no price effects), exiting implies devaluation-driven imports substitution. Finally, staying with the euro implies no exports boost from devalued currency.

Source: Bloomberg

So the Bloomberg exercise is fine and interesting, but one-sided ad extremum.

Which rounds us to the latest news from the ECB. With Greeks requesting EUR6 billion increase in ELA and ECB rejecting it, Reuters reports a comment from a source on the situation:

"Commenting on the expected extension of existing emergency funding, one person said: "It doesn't make sense to stop it now. The banks are not able to pay it back anyway. So if you froze it for another two or three days, it wouldn't make any difference."" Except, of course, it does make perfect sense: if the ECB were to extend ELA, there would not have been capital controls (note: I am not suggesting the ECB should have done so - that's a different matter). However, without ECB support for ELA uplift, we have capital controls. Which sends a clear message from Frankfurt to Greek voters: this is what you will have to live with if you go against us. 

And this neatly dovetails with what Jean Claude Juncker said to the Greek voters earlier: "You should say ‘yes’ regardless of what the question is.” 

Because whether Reuters wants it or not, in Europe, what the bank does, the banks' kings say.

28/6/15: Grexit with Help: Hans Werner Sinn

My favourite Bad Dude of German Economics, Hans Werner Sinn on Greek crisis:

Orderly Grexit is, in my view, still more disruptive and costly to all sides than a facilitated debt writedown and restructuring, while allowing Greece more time and fiscal room for implementing real reforms (as opposed to the currently proposed reforms, which are aimed solely on addressing short term fiscal imbalances).

Truth is - Europe has the means to meaningfully help Greece, as well as other 'peripheral' states, to get back onto growth path consistent with long term sustainability (in Greek case, we are talking about 3.5-4 percent annual growth averaging over a good decade). What Europe lacks is the will.

28/6/15: IMF Gun, Greek Voters

Just as the Greek Parliament engaged in a vote to hold or not to hold a referendum on Troika proposals, the IMF has decided to end any hope for any referendum to have any basis for validity. As noted by ZeroHedge (http://www.zerohedge.com/news/2015-06-27/imf-confirms-greek-referendum-irrelevant-after-program-expires-tuesday), the IMF chief told BBC that Greece can vote as much as it wants, but by the time the referendum is held next Sunday, there won't be any proposals standing that a vote can address in any shape or form. The reasons is that the current 'bailout' offer is only good if accepted before July 1st when the current programme expires.

Christine Lagarde also seemed to have been implying in her statement that the creditors have zero interest in working with Greece unless Greece accepts their demands in full prior to the referendum or unless the voters support the (by-then unavailable) 'bailout' in a referendum. In other words, Madame Lagarde had just issued an ultimatum directly to Greek people (if you do vote, vote as we want you to) and to the Greek Parliament (as you vote on referendum, vote as we want you to).

Funny thing, European democracy... as Italian voters should know...

27/6/15: Greek Political Outlook: June 2015

As Greece is set for a referendum on the bailout, here is the latest opinion poll:

Source: http://www.publicissue.gr/en/ 

In short, if there is an election called now, it appears Syriza-led Left will win with a stronger mandate (187 total seats against January outrun of 162 seats).

You can see more detailed polls results here: http://www.publicissue.gr/en/2768/pol-bar-145-june-2015/. Greek referendum polls are covered here: http://www.wsj.com/articles/greece-divided-on-bailout-referendum-1435397627.

Meanwhile, the dreaded Plan B (forced default and, associated Grexit) now appears to be Plan A for the euro area: http://www.reuters.com/article/2015/06/27/us-eurozone-greece-idUSKBN0P40EO20150627. All the while, EU 'leaders' continue to spin various versions of their objectives and intentions, as evidenced by the European Council President, Donald Tusk's most recent statement that "Greece is & should remain euro area member. In contact with leaders to ensure integrity of euro area of 19 countries". Whatever this means, anyone's guess, but referendum is the most democratic form of governance one can imagine in modern setting and the 'bailout' deal faced by the Greek Government is such a significant alteration of the structural conditions to be endured by the Greek people that a referendum is de facto required in order to either accept or reject these conditions. The problem is as follows:

1. A democratically elected government sees its electoral mandate fully contradicted by the 'bailout' offer;
2. The Government has no option but either accept the 'bailout' terms (and thus violate its own electoral mandate) or reject it (and thus impose an outcome - default and Grexit - that is not supported by the majority of the electorate). 

Thus, like Syriza or not (I am with the latter camp), but it has no ethical choice to make other than conduct a referendum. Anyone claiming that in a representative democracy an elected Government has a mandate to violate in full its electoral mandate (thus accepting the 'bailout' offer as it stands) is simply anti-democratic. In a representative democracy, an elected Government has only one feasible mandate - to execute its electoral mandate.

Note: I am still barred from using my Twitter account.

23/6/2015: Hans Werner Sinn: Just Grexit!

Hans Werner Sinn (Ifo) to Greece: "Will ya, just default, for the love of..."

23/6/15: In the parallel Universe of Greece: Strangulation is Cure

Greece has been 'repaired' with an application of yet another plaster to a gaping shark wound.

ECB hiked ELA once again, this time, reportedly, by 'just under' EUR1bn.

The terms of 'repairs' are sketchy for now, but for the economy that shrunk 23% since pre-crisis peak in real terms, we have novel - nay, breakthrough novel - measures to support growth included in the deal:

1. Corporate tax is rising from rather un-competitive 26% to highly uncompetitive 29%
2. Corporate profits in excess of EUR500K/pa are hit with 'solidarity' levy of 12%
3. Personal taxes are up, VAT is up, pensions levies are up, property taxes are up
4. Debt relief is not on the cards, as per Angela Merkel, the 180% GDP debt mountain "...is not an urgent question".

Summary of key financials on the 'deal' is here:

In short, we have an equivalent of economic idiocy here: an economy chocked by too much debt is being given a green light to get more debt. In exchange for this debt, the economy will be chocked some more (by some 2.7% of GDP on full year basis), so that more debt given to it can be rolled over with a pretence of sustainability.

As European leaders celebrate this crowning achievement of statism by replaying the same song for the 5th time whilst hoping for a different result. One has to wonder if there is something fundamentally, deeply, inexplicably wrong with the EU logic.

Or may be, just may be, the Greek 'reforms' are a herald of things to come under the Juncker-proposed, ECB et al approved, new Federalismo 2.0 plan? Why, check the leaks on that one: 

http://www.wsj.com/articles/new-eurozone-plan-calls-for-greater-economic-cohesion-within-currency-bloc-1434919204.

22/6/15: Another Adrenaline Injection by Dr. ECB

Yesterday, I noted that Greece is now on a daily drip of liquidity injections by ECB via ELA (http://trueeconomics.blogspot.ie/2015/06/21615-ecb-ela-for-greece-welcome-to.html) and so here we have the latest. Per reports, ECB hiked Greek ELA today to EUR87.8 billion.

Meanwhile, there are rumours of a 'deal' being agreed, albeit only 'in principle'. Draghi is meeting Tsipras later today and we will also have an emergency summit. So a beehive of activities all over the shop.

21/6/15: ECB ELA for Greece: Welcome to a Daily Drip of 'Solvency'

Two days ago, I speculated on ECB's motives for drip-feeding ELA liquidity provisions to Greek banks (http://trueeconomics.blogspot.ie/2015/06/1962015-greek-ela-and-ecb-whats.html). And I have noted consistently that ELA is now running against available liquidity cushion, meaning Greek banks are now simultaneously, skirting close to ELA limits in terms of

• Eligible collateral, and
• ELA funds available to cover deposits outflows.

So, not surprisingly, two links come up today:

1. Ekathimerini reports that Greek banks have enough ELA-supported liquidity to sustain capital outflows through Monday only: http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_20/06/2015_551285 as on the day of EUR1.8 bn ELA extension approved by the ECB< Greek banks bled EUR1.7 billion in deposits, bringing week's total to EUR4.2 billion in outflows, and
2. Reuters report that the ECB has been all along planning to review/upgrade ELA after Monday emergency summit: http://www.reuters.com/article/2015/06/19/us-eurozone-greece-pm-idUSKBN0OZ0DP20150619

Thing is, Greek banks are now solvent solely down to an almost daily drip-feeding of liquidity by the ECB. Which, sort of, shows up the entire charade of the dysfunctional euro system: the pretence of monetary and financial systems stability is being sustained by not just extraordinary measures, but by an ICU-like mechanics of assuring that a patient is not pronounced dead too soon...