The Big Fat Greek Squeeze?
With Greece’s coffers emptying and payments looming, Prime Minister Alexis Tsipras’s government is in a tight race to avoid a financial day of reckoning after receiving a “final political push” from his EU partners.
While Tsipras may have bought some time after yesterday’s European Union summit in Brussels, he acknowledges Greece is facing “liquidity pressure”, without revealing how much money is left in the bank. The country’s cash shortfall is projected to hit 3.5 billion euros ($3.7 billion) in March, according to Bloomberg calculations based on 2015 budget figures.
After nearly four hours of talks with German Chancellor Angela Merkel and other European leaders yesterday, Tsipras received no guarantees that creditors would unlock cash from a 240 billion-euro bailout package unless concrete steps are taken to implement agreed reforms. The EU chiefs warned him time is running out to overcome a standoff over the aid and that the Greek government needed to submit a new list of reform measures rapidly.
“To be quite honest, the ball is in the court and in the hands of the Greek government,” Finnish Prime Minister Alexander Stubb told reporters in Brussels today on the second day of the EU summit. “The institutional decisions were taken on Feb. 20 after long and difficult negotiations and now a final political push has been given.”
As Tsipras prepares for another meeting with German Chancellor Angela Merkel in Berlin on Monday, concerns grow as to whether he’ll be able to pay salaries and pensions next week. Just how long Greece can survive on reserves isn’t known, with estimates ranging from a matter of days to a few months. An EU official yesterday said the understanding among euro-zone leaders is that Greece has enough cash until April.
Accident Prone
“A government should not be in this position because it’s a difficult situation prone to accidents,” said Athanasios Vamvakidis, head of G-10 foreign exchange strategy at Bank of America Merrill Lynch. “We are assuming that in April and May the government will be paying mostly wages and pensions. For everything else, things will be delayed, so the government will be running arrears.”
Greece has signed off on a repayment of about 350 million euros of loans to the International Monetary Fund on Friday, two Greek government officials said.
Investors were relieved on Friday that at least an accident has been averted for now. Greek bonds recovered from multi-month lows, while the Athens Stock Exchange index was trading 2.7% higher. The yield on three-year bonds was 55 basis points lower at 23.2 percent at 13:19 p.m. in Athens, after reaching yesterday the highest level since July, when the notes were first issued. The Athens Stock Exchange index has fallen 15.7 percent so far this month, while the yield on three-year bonds has risen almost 9 percentage points as a rift between Greece and its creditors widened.
Rupture Avoided
“We avoided a rupture which could lead to a depositors panic next week,” George Pagoulatos, a professor of European politics and economy at the Athens University said. “On a more substantial level, we saw that neither side wants to push things to the edge. The fact remains though, that Greece needs to deliver on concrete reform commitments, and it couldn’t have been otherwise.”
Even if Tsipras meets March obligations, things could only get tighter in coming months. The second-quarter shortfall, including debt payments, is an estimated at 5.7 billion euros, based on Bloomberg calculations using monthly figures from the 2015 budget passed by the previous government and finance ministry information on the debt servicing costs.
The second-quarter projection assumes Greece is able to roll over short-term debt as it comes due, most of which is held by the country’s banks. The lenders thus far have participated in liquidity-draining auctions rather than let the country default. That could change if things deteriorate.
Deposit Outflows
Greek daily deposit outflows accelerated to a one-month high Thursday, two people familiar with the matter said. At this pace available liquidity could be exhausted in a matter of days, one of the people said.
The Bank of Greece has plugged cash shortfalls by tapping the reserves of other public sector entities, including pension funds, hospitals, and universities. How much money these entities have and how easily the government can directly access these funds is critical to knowing how long Greece can keep paying its bills. Officials directly involved in the bailout talks have said they don’t have a clear picture.
“Although visibility on the exact liquidity position is low, reports continue to suggest that the Greek authorities’ ability to continue to meet their liabilities is measured in weeks,” Malcolm Barr, a JPMorgan economist based in London, wrote in note to clients Wednesday.
The public sector held 12.3 billion euros of deposits in the Greek banking system at the end of January, including 3.4 billion euros from the social security fund and 2.2 billion euros from local governments, according to the most recent data available from the central bank.
Plugging Gaps
If the government taps public sector deposits held at commercial banks, this could add to funding pressure on Greek lenders, which have lost more than 20 billion euros in deposits since November and are reliant on an emergency funding through the European Central Bank to prop them up.
Tsipras is plugging the budget gaps as best he can. Spending in February was 800 million euros less than originally planned and this week the government moved forward with measures designed to bring in more revenue, including a plan to allow repayment of tax arrears in 100 installments.
The government potentially bought itself some time thanks to the ECB. The bank’s governing council on Wednesday raised the amount available to Greek banks by 400 million euros to about 70 billion euros, people familiar with the matter said. Still, that leaves the financial system with a cushion of just 3 billion euros and was less than half of what Greece requested, the people said.
Things are not good in Greece. In order to avoid going bankrupt and a full-blown banking crisis, the cash-strapped leftist government is scrambling to find money and it's resorting to raiding pensions, which were already at a breaking point, to make its basic payments.
“If we start seeing progress in the negotiations and it becomes clear that we are going to have a deal and Greece will receive official funding in June, there is absolutely no way that the Europeans will allow an accident in Greece,” Vamvakidis said. “However, if the brinkmanship continues and by the end of March we don’t have some concrete progress in the negotiations and we are exactly where we are today, then these funding pressures will become more severe.”
And Kathimerini reports the Greek government has also called on major public corporations, including utilities, to invest their cash reserves in state debt, along the lines of the proposal made to social security funds and other state entities.
As the FT reported last week, the Syriza government is pressing the country’s social security funds to hand over hundreds of millions of euros immediately to ensure that pensions and civil servants’ salaries are paid this month (of course, we wouldn't want to piss off civil servants in the outrageously bloated Greek public sector!).
How long can this charade go on? I don't know but it's clear Greece's creditors have had enough of the clowns running the country. German Chancellor Angela Merkel has set strict terms for Greek aid, stating on Friday Greece would only receive fresh funds to ease a cash crunch once its creditors approve a comprehensive list of reforms it has promised to present soon.
Basically, Merkel and Schauble are telling Tsipras and his cronies that there is no more time to waste. Either reform the Greek economy or you risk going back to the drachma and being the Argentina of Europe (if they're so lucky).
I call it the big fat Greek squeeze. The creditor nations are using every tool available to weaken the leftist Syriza government in an attempt to persuade Greeks in Greece to start realizing that they won't be blackmailed into submission and that this government is a total farce.
To be sure, the Germans are playing a very dangerous game, one that could easily backfire spectacularly on them, but I'm tired of professor Varoufakis lecturing his counterparts and want to see more concrete actions focusing on what Greece needs now. And what Greece needs are major structural reforms in its antiquated, over-bureaucratized and corrupt economy which benefits a handful of ultra rich families, a few special interest groups and the bloated public sector.
In a sad state of affairs which proves austerity isn't working, Kathimerini now reports the European Union will commit 2 billion euros ($2.15 billion) to help Athens deal with what even EU leaders now call the "humanitarian crisis" hitting Greeks in the wake of the financial crisis that left the nation on the brink of bankruptcy:
EU Commission President Jean-Claude Juncker said the funds will not be linked to international loans keeping Greece afloat but will instead be used as aid for people and companies hit hardest by the crisis.Get to it Mr. Tsipras, time is running out and your obsession of holding on to power at all cost is quickly making you and the Syriza government the laughingstock of the entire world.
Greek Prime Minister Alexis Tsipras praised the decision.
"It is a good sign," he said. "It was recognized that there is a humanitarian crisis in our country and that there must be a common effort against it — because it was the not the result of some natural catastrophe."
The pledge came hours after the EU leaders told Tsipras to come up "in the next days" with a raft of budget cuts and tax increases to improve his balance sheet before he gets more bailout money from Europe.
Tsipras, however, refused to commit to a date of delivery, saying "deadlines only create more pressure."
German Chancellor Angela Merkel said Tsipras can decide what mix of budget cuts and tax increases to impose: "What’s important is that in the end the sums add up."
Fears remain that the hard line of the Greek government formed in January could cause the country to drop out of the euro, something that would trigger a crisis for the currency shared by 19 nations.
"A disorderly Greek exit from the euro remains a major threat to Europes economic stability," British Prime Minister David Cameron said.
European leaders have become increasingly exasperated by what many see as foot-dragging on the part of Tsipras’ government. Greece agreed a month ago to push through reforms in exchange for EU help in keeping it solvent, but has delayed submitting the measures.
French President Francois Hollande said Tsipras had recommitted to moving fast.
"The Greek prime minister promised me that he would move as quickly as he can to present his reforms," he said.
Of course, if you ask me, Tsipras, Merkel, Schauble, Varoufakis, Juncker and many others should all get an Oscar for their performance. I've never seen so much hopeless political dithering in my life. How the eurozone can survive with such incompetent leaders incapable of making critical decisions is beyond me. Then again, I remain short euros and will gladly short their incompetence!
On that cynical note, I leave you with the now infamous discussion which took place two years ago in Zagreb, Croatia where then professor Varoufakis discussed his book, The Global Minotaur.
Take the time to listen carefully to Varoufakis, there is no denying he's brilliant -- and hopelessly full of himself! He explains in great detail why the United States is able to maintain its global hegemony in spite of taking on increasing debt to maintain its control. You will learn why Paul Volckner is the most important central banker in history and why President Reagan was wrongly glorified by Americans and should be a mere "footnote in history."
I'm actually reading The Global Minotaur along with many other books including Michael Hudson's The Bubble and Beyond, Steve Keen's Debunking Economics, Warren Mosler's The 7 Deadly Innocent Frauds of Economic Policy and Soft Currency Economics II, and Randall Wray's Modern Money Theory. I recommend them all, especially to economics and finance students being taught mainstream garbage at universities.
As you will see in the discussion below, Varoufakis at one point sticks the finger to Germany. This was a complete hoax. A German TV presenter has admitted to faking a video showing Varoufakis giving the middle-finger gesture to Germany, after the politician vehemently contested its authenticity.
Mr. Varoufakis obviously doesn't understand satire. He should stop going around the world lecturing people, doing photo spreads for Paris Match, and writing blog comments on Greek-German relations, and start implementing much needed reforms in the Greek economy.
It's high time Greeks take responsibility for their country's economic failure and realize that there are no magical solutions to this ongoing Greek tragedy. The Global Minotaur will continue to reign supreme but the Greek Minotaur is facing an ugly and painful death if it continues to avoid much needed reforms.
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