ECB Threatens Athens With Bank Funding Cutoff If No Deal In One Month: February 28 Is Now D-Day For Greece
131
January, 2015
As
Deutsche Bank's George Saravelos politely puts it, "Developments
since the Greek election on Sunday have moved very fast." And
indeed, so far the new Tsipras cabinet, and here we focus on the
words and deeds of the new finance minister Yanis Varoufakis, has
shown that the market's greatest hope - that the status quo in Greece
will continue - has been crushed into a pulp (and so have Greek stock
and bond prices) especially following yesterday's most recent
comments by the finmin in
which he said that Greece "does
not want the $7 billion"
from the Troika agreement and that it wants to "rethink the
whole program", culminating with an epic exchange with Eurogroup
chief Jeroen Dijsselbloem in which Greece made it clear that the
"constructive talks" are over.
And
suddenly the Eurozone is stunned, because what had until now been its
greatest carrot when it comes to dealing with Greece, has become
completely useless when the impoverished, insolvent nation itself
says it no longer needs a bailout, seemingly blissfully unaware of
the consequences.
So
earlier today the ECB's Erikki Liikanen, tired of pleasantries and
dealing with what to Europe is a completely incomprehensible and
illogical stance, one which is essentially a massive
defection by
Greece in the European "prisoner's dilemma", and which
while leading to a Greek financial collapse and Grexit -both
prerequisites to a subsequent Greek economic recovery unburdened by
the shackles of the Euro - would
also unleash a European depression, came out and directly threatened
Greece that it now has 1 month until the end of February to reach a
deal with the Troika, or
else the ECB would cut off lending to Greek banks, in the process
destroying the otherwise insolvent Greek banking sector.
And
since only the ECB backstop has prevented a banking sector panic, the
ECB is essentially betting the house, and the sanctity of the
Eurozone (because after a Grexit all bets are off which peripheral
leaves next) that the threat, and soon reality, of a bank run (at
last check Greece had about €145 billion in deposits still left in
its bank after JPM's latest estimate of €15 billion in outflows in
January) will finally force Varoufakis and Tsipras to sit at the
negotiating table with the understanding that not they but the Troika
has all the leverage.
A deal on extending Greece's bailout deal must be found by the end of February or the European Central Bank will not be able to continue lending to its banks, ECB council member Erkki Liikanen said on Saturday. Europe's bailout programme for Greece, part of a 240-billion-euro ($270 billion) rescue package along with the International Monetary Fund, expires on Feb. 28 and a failure to renew it could leave Athens unable to meet its financing needs and cut its banks off from ECB liquidity support.
Greece's new leftist government, which aims to ease the strict terms of the bailout that have imposed harsh austerity, opened talks with European partners on Friday by flatly refusing to extend the current programme or to cooperate with the international inspectors overseeing it.
"We (ECB) have our own legislation and we will act according to that... Now, Greece's programme extension will expire in the end of February so some kind of solution must be found, otherwise we can't continue lending," Liikanen, also the governor of Finland's central bank, told public broadcaster YLE.
"I don't believe that one can hide from the realities in the economy," he said in an interview.
And
then another hint from the ECB, this time from Vitor Constancio.
As Bloomberg
notes,
"at the moment, Greece has a special dispensation from the ECB
because it’s complying with a bailout program. That means its debt
can be used in central bank refinancing operations even though it is
rated junk.“There
will be no surprises if we find out that a country is below that
rating and there’s no longer a program that that waiver
disappears,” ECB
Vice President Vitor Constancio said at an event in Cambridge,
England, on Saturday."
The
question arose why when Greece already has undergone a Private Sector
Involvement restructuring, i.e. a bankruptcy that however only
impacted private entities and not official ones, such as the ECB,
can't Greece have another debt haircut to which Liikanen responded
that: "A significant debt restructuring has been carried out
with private investors. The ECB cannot fund a state directly, which
is what it would mean in this case."
Odd:
because that is precisely what the ECB is doing with QE, when it
monetizes any of a number of Eurozone deficits. To this Liikanen also
had a quick response:
- LIIKANEN SAYS ECB ISN'T FINANCING EURO GOVERNMENTS' DEFICITS
Well,
it is, but we'll let that slide for the time being. The bigger issue
is that since the ECB directly holds tens of billions of Greek debt,
any impairment on this debt would crush what the ECB has been saying
from day one: that it cannot suffer
losses on the debt it has monetized or otherwise transferred over to
its balance sheet. Such an impairment would immediately destroy
Draghi's credibility, and promptly lead to furious screams from
around the Eurozone as taxpayers suddenly realize all too well they
are on the hook for funding the Eurozone's most insolvent members,
first Greece and then everyone else who has already entered a toxic
deflationary spiral. And since the ECB would finally be exposed for
being Europe's "bad bank", the scramble to dump as much
toxic exposure on Draghi would begin in earnest in the process
launching the beginning of the end of the Eurozone.
One
can almost see why Greece does think it has all the leverage.
That
said, Greece now also has a countdown in which it can and will have
to make a decision what to do with its leverage, and precisely 28
days until its very own D-Day which is now February 28, 2015 as per
today's ECB threat.
So
with February now shaping up to be an even more volatile month for
Europe, and thus the world, than January and December (both of which
closed red) here is the full schedule of events and what the "known
unknowns are" in the next 4 weeks, courtesy of Deutsche Bank.
From
George Saravelos' Update on Greece
It
is worth bearing in mind that the timing, scope and commitment to the
policy changes announced by Greek ministers is highly uncertain, not
least because the legislative agenda is likely to be directed by the
leadership team of the new government rather than individual line
ministries. This still leaves plenty of uncertainty on the new
government’s intentions. On the more negative side, the breadth of
statements was so wide and the speed with which they were made so
quick, that we now consider an extension of the February 28th program
expiry date as a
key date within
the negotiation process:Europe
and the Troika are very likely to request an explicit commitment from
the Greek government to close the current mission review and not
reverse previous policy.
The precise form such a commitment would take is unclear at this
stage, but our underlying assumption is that uncertainty around the
new government’s policy intentions is so high, that Europeans will
request assurances before proceeding with more in-depth negotiations
over the program in Q2.
In
turn, the above developments will likely have important implications
for Greek bank financing at the ECB. Termination of the program on
February 28th renders GGB-based collateral ineligible at Eurosystem
refinancing operations, but still allows Greek banks to shift funding
to Emerency Liquidity Assistance.However,
ELA usage is under bi-weekly ECB review and is very likely to be on a
rising trend over the next few weeks:
to accommodate potential deposit flight;
to absorb foreigners’ refusal to roll-over t-bills that are
maturing; and to absorb fresh government t-bill issuance to finance
upcoming debt repayments to the IMF and other obligations.
These large needs make it likely that the availability of ELA usage
is itself linked to program extension above.
First, under
what conditions would the Troika be willing to extend the program and
what form would this extension take? Our initial expectation was that
a technical extension would have been offered to July followed by a
successor ECCL program. Recent market developments and poor budget
execution leave Greece’s ECCL eligibility an open question however,
and it is possible that the Troika now only accepts program extension
by a full year to coincide with the conclusion of the IMF program in
March 2016. Such a large extension would be more difficult for the
Greek government to manage domestically.
Second, does
the ECB link Greek bank ELA provision to program extension as well?
Given rising usage over the next few months, we would consider this
an increasing possibility.
Third, what
will the Greek government’s response to these conditions be? Public
statements over the last 48-hours make it particularly difficult to
envisage the government’s reaction function. On the one hand an
offer of a one year extension and a written commitment to close the
review would be particularly difficult for the government to manage
domestically. On the other hand, the suspension of ECB financing of
Greek banks would be exceptionally damaging to the economy.
Here
is an indicative timeline of key events that will likely provide
answers to these questions:
- Friday January 30th – Eurogroup President Dijsselbloem meets with the Greek finance minister Varoufakis and Deputy PM Dragasakis in Athens. A press conference will follow, with the meeting likely setting the tone of negotiations to follow.
- Sunday February 1st - Greek finance minister Varoufakis meets UK finance minister Osborne in London
- Monday February 2nd – Greek finance minister Varoufakis meets French finance minister Sapin in Paris Tuesday
- February 2nd - Greek finance minister Varoufakis meets Italian finance minister Padoan in Rome
- Wednesday February 4th-5th – Bi-weekly ECB review of ELA
- Wednesday February 4th – Likely t-bill auction to cover 1bn redemption on 6th
- Thursday February 5th - Greek parliament opens, elects new speaker of the House
- Saturday February 7-9th Government presents legislative agenda to parliament, vote of confidence midnight Monday 9th
- Wednesday February 11th – Likely tbill auction to cover 1.4bn maturity on 13h
- Thursday February 12th – European Council of EU Leaders, Tsipras likely to meet Merkel on sidelines
- Friday February 13th – Voting for new Greek President begins, EC Commissioner Avramopoulos most likely candidate as per various media reports, originating from New Democracy. Likely completed by second round on the following day requiring 151 MP majority
- Monday February 16th – Eurogroup where Greece likely to be top of agenda, conditions for extension of program to be made explicit by now
- Wednesday February 18th-19th- - Bi-weekly ELA review
- Saturday February 28th – Current EFSF program expires
In
sum, developments and pressure on Greece have accelerated over the
last few days, with a very large degree of uncertainty around both
the Greek government’s and Troika’s position on how negotiations
will proceed. We expect this to be ultimately resolved by a Troika
request from the Greek side to commit to program completion and the
broad contours of previously committed policy, particularly with
regard to structural reform. In turn, program extension may itself be
linked to ongoing ECB/ELA financing of Greek banks. The precise form
this request takes and the Greek government’s reaction will
ultimately determine the path Greece takes in coming weeks and
months.
'Busy' Greek prime minister to meet Angela Merkel 'in due time'
Greek
PM Alexis Tsipras will meet German Chancellor Angela Merkel “in due
time,” a Cabinet member said, adding that Tsipras has a very busy
schedule and plans to meet with the leaders of Italy and France
first.
31
January, 2015
Greek
PM Alexis Tsipras will meet German Chancellor Angela Merkel “in due
time,” a Cabinet member said, adding that Tsipras has a very busy
schedule and plans to meet with the leaders of Italy and France
first.
“Tsipras
has a very busy schedule at the moment with the upcoming meetings
with head of the Italian government Matteo Renzi, the President of
France, Francois Hollande and the Greek parliament,” the Minister
of State for Greece, Nikos Pappas, told the television channel Mega.
Chancellor
Merkel says she has rejected the prospect of giving the new Greek
government any debt relief, which could lead to a rising in tensions
between Athens and its international credдtors.
“My
obligation to respect the clear mandate of the Greek people with
respect to ending the policies of austerity and returning to a growth
agenda, in no way entails that we will not fulfill our loan
obligations to the ECB or the IMF,” Tsipras said,
which was reported by Bloomberg.
Greece
still has a debt of more than €317 billion ($357 billion), more
than 175 percent of the country’s gross domestic product, which is
a record for the European Union. This equates to a debt of €34,000
($38,300) per person, while the average wage in the country is only
€1,200 ($1350). Athens wants to renegotiate the terms of a €240
billion ($269 billion) bailout and says it will look to halve this
debt.
The
Greek finance minister, Yanis Varoufakis, will meet with his French
counterpart, Michel Sapin, on Sunday in Paris, according to the
French Finance Ministry, Reuters reported. However, France has not
shown any sign either of giving Greece any debt relief.
Markus
Gerber, an economics professor, told RT that it is essential that
Greece is not able to blackmail the Eurozone and get its demands met,
as this could open the way to other countries to follow suit.
“The
proposals are neither legal or legitimate. They are not legal because
Greece as a member of the European Union is bound to respect
contracts and treaties. Greece has only survived due to a great
gesture of generosity and solidarity by all members of the Eurozone.
It is not legitimate because Greece has not made any effort to reform
the country,” Gerber
said.
Greece
has already said it will not continue negotiations with the Troika
group, which has been responsible the monitoring the Greek economy
since it received the bailout money. Varoufakis also mentioned that
Syriza would not be going back on its election promise by asking for
an extension to its bailout program.
"This
platform enabled us to win the confidence of the Greek
people," Varoufakis
told reporters after his meeting with Jeroen Dijsselbloem, who is the
head of the Troika group. "Our
first action as a government will not be to reject the rationale of
questioning this program through a request to extend it," Reuters
reported.
Felix
Moreno de la Cova, an economist, told RT that he agrees with Syriza
that something has to be done and there needs to be some
restructuring. However, he added that the Greek government can only
do this if they are willing to balance the books.
"I
think Syriza has the will and the political capital to break with the
European Union and to leave the Euro. I hope this does not happen as
this will be bad for Europe and for Greece, but they are willing to
take it that far. The positions in Brussels have changed and in
Germany, they are actually willing to let that happen,” the
economist said.
Here is the mainstream, pro-EU version of events
Greece on collision course with Brussels after Merkel backs hardline debt stance
Germany will resist Greek efforts to do deals with individual creditor nations, even as Syriza finance minister heads to meet French counterpart
1
February, 2015
Angela
Merkel has ruled out the prospect of Greece securing further debt
cuts from its creditor nations, potentially putting the country’s
new leftist government on a collision course with Brussels. The
German chancellor’s uncompromising stance will not be welcomed in
Athens, where the new ruling party, Syriza, insists that it will make
good on its promises to halve the country’s €320bn (£240bn) debt
obligations and scrap a range of swingeing budget measures that were
imposed in exchange for the loans.
Athens
is refusing to cooperate with the European Commission, European
Central Bank and International Monetary Fund – the troika of
institutions overseeing the loans, which total about 175% of Greece’s
gross domestic product. Instead its new government is looking to meet
with individual creditor nations as it seeks concessions that it
claims are vital if Greece is to emerge from years of austerity.
However,
such unilateral measures will be fiercely resisted by Germany, which
is adamant that eurozone creditor nations must hold the line on
Greece’s debt. When asked in a newspaper interview published
yesterday whether there could be further concessions for Greece,
Merkel said Athens had already been forgiven billions of euros by
private creditors. “I don’t see a further debt haircut,” she
said.
Her
comments echoed those made the previous day by the German finance
minister, Wolfgang Schäuble, who told Die Welt: “If I were a
responsible Greek politician, I wouldn’t lead any debates over a
debt haircut.”
However,
Merkel stressed that Berlin still wanted Greece to remain in the
eurozone. She told the Berliner Morgenpost that Europe will continue
to show solidarity with Greece and other struggling nations “if
these countries undertake their own reform and saving efforts”.
Germany
is clearly worried that if concessions were granted to Greece, other
struggling EU member states would make similar demands. Yesterday
tens of thousands of people marched through Madrid’s streets in a
show of strength by Spain’s fledgling radical leftist party
Podemos, which hopes to emulate the success of the Syriza party in
elections later this year.
However,
Germany will be buoyed by the fact that its tough line on debt relief
appears to have been endorsed by France. On Friday night a source
close to the French president’s office told Reuters that president
François Hollande and Merkel were agreed “that it is important to
respect the choices of the Greek people and for Greece to respect its
commitments” to the holders of its debt. “There is a need for
dialogue and exchange to better understand the intentions of the
Greek government,” the source said after Hollande and Merkel had
met over dinner in Strasbourg.
In
an attempt to break the consensus among eurozone nations, the new
Greek finance minister, Yanis Varoufakis, is meeting with his French
counterpart, Michel Sapin, in Paris. Varoufakis appeared to rule out
the prospect of ceding to the wishes of eurozone creditors. “We are
not prepared to carry on pretending and extending, trying to enforce
an unenforceable programme which for five years now has steadfastly
refused to produce any tangible benefits,” he told the BBC’s
Newsnight.
“The
disease that we’re facing in Greece at the moment is that a problem
of insolvency for five years has been dealt with as a problem of
liquidity.”
Have a look at the BBC page - they've one tabloid (one way of taking on RT, I suppose - lol)
Here is the BBC reportage that Yanis Varoufaskis savaged
Nigel Farage on the question
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