End
of austerity’? Greece claims bailout battle victory, warns hard
time not over
The
Greek prime minister says a new agreement to extend the country’s
bailout voids the previous administration’s austerity commitments.
The politician said, “we won the battle, but not the war,” but
believes further difficulties lie head
Alexis
Tsipras made the comments in a televised statement on Saturday. He
spoke of the “important success” of Greece being able to
negotiate a funding agreement with eurozone ministers, which will see
the bailout extended by four months.
The
PM hailed this as, “the end of austerity and the bailout,” as
Athens was able to severe ties with the ‘hated’ Troika group,
which was responsible for making sure the country stuck to its
bailout conditions and repay its international credдtors.
``We
won a battle, but not the war. The difficulties lie ahead of us,'' he
said, following an agreement to draft a new set of proposals and
reform measures on how the country will pay back its debt, which it
will have to present on Monday. Greek Prime Minister Tsipras is
meeting with his cabinet on Saturday to discuss the proposals.
“The
four-month period will be a time to rebuild new relations with Europe
and the IMF," Greek Finance Minister Yanis Varoufakis told
reporters on Friday following the agreement."Greece has turned
the page" and won some time to negotiate a better bailout deal,
the official said, emphasizing that Greece had not used any threats
or bluffs to reach an interim agreement.
For
its part, EU creditors have insisted that Greece make a commitment to
reform its budget to show it is serious about wanting to pay back the
bailout money. Athens had originally asked for the loan to be
extended by six months to get more time to renegotiate its €316
billion debt ($359 billion).
Although
Athens believes itself to be triumphant and sees this as the end of
austerity, it could in fact be seen as a hollow victory. In reality
little has changed and Greece is still facing a lot of difficulties
after receiving very few concessions. Thus, the Troika group will be
no more, but the European Central Bank, the International Monetary
Fund and the European Union (who used to make up the Troika) will
still make sure Greece sticks to its promises.
In
the short term, however, this may be enough for Prime Minister
Tsipras and Finance Minister Varoufakis to please the Greek
electorate on a ticket of being able to halt deeply unpopular
austerity measures that were agreed under the former government of
Antonis Samaras, and saw taxes and public spending cuts spiking.
Varoufakis
has been committed to stopping privatization of certain Greek state
enterprises. He also said there would be no pension cuts and added
VAT, which had been agreed by the previous administration. Critics of
Syriza note the government does not know where it will find the money
to fund these programs.
On
February 15, around 20,000 protesters gathered outside the parliament
building in the Greek capital for an anti-austerity, pro-government
demonstration.
"We
want justice here and now...for all the suffering Greece has gone
through the past five years," 58-year-old
Theodora, who has been unemployed for the last three years, told AFP.
Many
of the protestors showered Prime Minister Tsipras and the new
government with praise for challenging Brussels, and trying to end
austerity measures, which have crippled the country.
Bailout
Blueprint: Deal or Capitulation? ECB Prepares for a Greece Exit from
Euro Zone
21
February, 2015
Bailout
Blueprint: Deal, Capitulation, or Neither?
At the 12th hour Finance Chiefs Draw Up Greek Bailout Blueprint.
At the 12th hour Finance Chiefs Draw Up Greek Bailout Blueprint.
Negotiations led by Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup of 19 eurozone finance ministers, have produced a common communiqué on the extension of Greece’s €172bn bailout, according to a eurozone official.
The text was produced after nearly five hours of bilateral talks between Mr Dijsselbloem and key ministers, including Yanis Varoufakis, Greek finance minister, and Wolfgang Schäuble, his German counterpart. The eurozone official also said Mr Dijsselbloem was in direct contact with Alexis Tsipras, Greek prime minister, during the talks.
The text must now be presented to all 19 eurozone ministers for approval. “It will be fast,” said the official.
According to a Greek government official, the new text was also agreed by the three institutions that monitor the country’s bailout: the European Commission, the European Central Bank and the International Monetary Fund.
Mr Varoufakis had earlier insisted that Greece had made sufficient concessions to reach a deal to extend the bailout for six months after it expires next week and predicted that he and his 18 eurozone counterparts would reach an agreement.
He said Athens had “gone not an extra mile [but] an extra 10 miles” in its proposal for the extension, submitted to eurozone leaders on Thursday, adding it was now the turn of other ministers to meet Greece “not half way, but one-fifth of the way” to reach a deal.
Mr Varoufakis and a group of German-led eurozone countries are locked in a stand-off over the conditions of a bailout extension, with Berlin insisting the new Greek government agree to the terms of the existing bailout before it engages in negotiations over any changes in the programme.
Mr Tsipras’s government has refused, saying it was elected to end the current bailout, but has made significant concessions, agreeing to ask for an extension with some loopholes that would give it some leeway to negotiate terms.
Speaking after a meeting in Paris, the leaders of both France and Germany said they remained committed to keeping Greece in the EU’s common currency, but Angela Merkel, the German chancellor, added that Mr Varoufakis’ request needed to be changed before it would be acceptable.
“There is a need for significant improvements in the substance of what is being discussed so that we can vote on it in the German Bundestag, for example next week,” Ms Merkel said, standing next to her French counterpart, François Hollande.
Is
there a deal? Does it need to be changed?
following points:
- 4 not 6-month extension
- no completion of current program
- no new austerity measures
- no unilateral actions
If that's really the deal, then Greece bought time to speed up tax collections. In
turn, that would strengthen its hand four months from
now when this process
starts all over.
As I pointed out previously, as long as Greece has a primary account surplus, it
can stay on the euro.
I have wondered if tax collections had shrunk so much ahead of Syriza's victory
I have wondered if tax collections had shrunk so much ahead of Syriza's victory
that it no longer has a primary account surplus.
ECB Prepares for a Greece Exit from Euro Zone
The European Central Bank is preparing for the event that Greece leaves the euro zone and its staff are readying contingency plans for how the rest of the bloc could be kept intact, German news magazine Spiegel reported in a preview of its magazine.
The ECB declined to comment on the report, Reuters reported.
The German magazine also reported that the ECB was pushing Athens to introduce controls on the movement of capital.
Earlier this week, the European Central Bank denied a report in a German newspaper that it wanted Greece to introduce capital controls to stem the outflow of deposits from its banks.
Germany΄s finance minister was hostile to Athens΄ proposal this week although the government softened its tone on Friday as euro zone finance ministers raced to break the deadlock.
I
suspect the ECB has been preparing for Grexit for months, and that
helps explain the hard stance of Germany.
Deal or not? Capitulation by Greece or not? More negotiations in 4 months? If the latter, Greece bought some time to get back to (or strengthen) its primary account surplus.
Mike "Mish" Shedlock
Deal or not? Capitulation by Greece or not? More negotiations in 4 months? If the latter, Greece bought some time to get back to (or strengthen) its primary account surplus.
Mike "Mish" Shedlock
What's
Next For Greece, The Euro, And Markets?
21 February, 2015
First, a quick recap of what happened yestrday, courtesy of the WSJ:
#1:
Germany Got What it Wanted, for Now
Germany
spent the last few weeks insisting that it wouldn't scrap the bailout
program and still lend money to Greece. The
new left-wing government of Alexis Tsipras insisted that it wouldn't
extend the program and instead sought some "bridge"
financing from the eurozone. In the end, Greece asked to extend the
program and pledged to follow its rules. The
extension lasts until the end of June, just weeks before Greece must
make several large debt repayments.
#2:
Greece Got the Prospect of Some Leniency
First,
the eurozone appeared to offer some leeway on Greece hitting its
budget target for 2015. Given the sharp deterioration in the Greek
economy and government tax receipts, that seemed inevitable. The
eurozone statement also doesn't repeat the budget targets for future
years of the existing program, which call for the government to run a
surplus, excluding interest payments, of 4.5% of gross domestic
product. Relaxing that requirement had been one of Mr. Tsipras's main
goals.
#3:
The Deal May Not Hold
By
the end of business Monday, Greece must submit a list of legal
overhauls that it wants to adopt, based on the current program. Mr.
Tsipras has said he wants to replace many of the mandated changes.
But a number of the ones he dislikes most--such as cuts in
pensions--are also the ones considered most vital by the eurozone and
the IMF.If
the eurozone doesn't like his proposal, ministers will meet again to
discuss their next move.
#4:
Greek Politicians May Reject Deal
The
deal appears to go against some of Mr. Tsipras's campaign
pledges. Greece
will still be subject to oversight by the European Commission, the
IMF and the European Central Bank, whom he had vowed to kick out.
Rejecting such conditions would have left Greece without access to
funds and at risk of its banks being cut off from the ECB. That could
have forced Greece from the eurozone, something the Greek public
still opposes. But Mr. Tsipras's Syriza party and his coalition
partner may not be happy.
#5:
Greece Will Need More Money
Running
lower budget surpluses this year, and possibly for years in the
future, means Greece will need more funds. Eurozone officials have
said they may lower interest rates on loans given to Greece, but it
is unlikely to be enough. There
is only around EUR15 billion ($17 billion) left in Greece's bailout,
around EUR10 billion of which is in a fund for Greek banks.
As it stands now, the deal says those funds should be reserved for
the banks and not for financing the Greek government.
* *
*
And
next, courtesy of Peter Tchir Of Brean Capital, is one outlook
on What's
Next For Greece, The Euro, And Markets?
I’m
sure that at this stage everyone is sick and tired of hearing about,
reading about, or even thinking about Greece and GrExits, but it is
impossible not to spend a couple of minutes looking at Friday’s
“deal” and figuring out what that will mean for the future.
Garanimal
30%: These
“mix-and-match separates makes clothes easy to pair and fun to
wear” is my new term for the optimistic outcome. Greece starts
aggressively collecting taxes, makes progress on other “hot button”
issues for the rest of Europe and gets a package designed for long
term sustainability. I think we see European equities rally. European
bank stocks rally. Credit spreads narrow considerably, and very
quickly, a new deal is cut for Portugal. That is followed by renewed
efforts to kick-start the economies of Spain and Italy. This would
all be very good, and is possible, but already seems like the market
is putting a higher probability on this occurring than I am. Greek
bonds should do extremely well in this case. For the Euro, I think I
can create believable scenarios that have a short covering spike
higher on the back of this sort of watershed event, but I can also
think of plausible reasons why it would resume its QE inspired
downtrend.
GrExit
40%:
I put the likelihood of a Greek exit at 40%, making it my most likely
scenario. The 4 months is merely an attempt by both sides to revamp
their plans for an exit. On the bright side, that considerably
increases the likelihood of an orderly exit. They have to renegotiate
the terms of all their existing loans from Euros into Drachmas (they
should probably do the same with the bonds, but the loans are their
big issue). That way the rest of Europe can still say they are
getting paid in full – just in Drachma at likely an overly generous
conversion rate, rather than in Euros. Greece CANNOT start a new
currency and keep all of its outstanding debt in Euros. It would also
give the ECB (probably with strong encouragement from the Fed) the
time to create a realistic way to make the transition palatable for
the banks – the Greeks will need solvent banks in the new world
order. I believe that an orderly exit is fine, and I think with 4
months to do it, they
are 75% likely to find a solution that works for everyone.
Given all the parties at the table, the precarious status of some of
those parties (political or financially) there
is a risk that the GrExit is messy, which I put at 25%. While
the markets should largely be able to ignore a well negotiated
reasonable exit strategy, it will encourage parts of Spain, Italy,
Portugal, and possibly even Finland to discuss exiting the single
currency (they will want to maintain as many benefits of being in the
EU as possible, without the currency or some of the more onerous
regulations). Under the good exit scenario, risk assets in Europe
struggle to continue their strong performance (the CAC, DAX, MIB, and
IBEX are all up 10% to 15% this year). The
new “better” Euro appreciates as investors start to bet that
other weak members, requiring the most ECB support, also look to
leave,
making the Euro look more and more like the Deutschemark and crushing
the large short base. The “messy” Grexit scenario hurts all risk
assets as questions arise about who will pay what debt and when. Even
with QE, I would expect selling of periphery debt and I think the
Euro would drop precipitously as investors fled Euro denominated
assets in droves.
So maybe this is actually two scenarios – the Good Exit and the Bad
Exit.
Kick
the Can 25%:
The Germans, who apparently have a word for everything, also have a
work for Kicking the Can – its “EU Summit”. There is no group
that is better than kicking the can the EU, and betting on any summit
resulting in a statement that sounds great, that is really more just
can kicking is usually the odds on favorite. I put that at a reduced
probability this time around, as it might be causing more instability
at home for many politicians, rather than less. Having said that, the
prospect of potentially working through July and, horror of horrors,
August, could be daunting enough that another 4 month kick could be
given – especially if Greece makes some progress, just not enough.
Remember, the EU “bailout” largely goes to cover paying back
previous EU, ECB, and IMF loans. Some is new debt to fund the
country, but that is the smaller amount. This is more of the same. If
this scenario looks likely, expect more small moves in all asset
classes – the moves will be relatively small and particularly
vicious – and feel random after the fact – just like the past 3
weeks. It would warrant fading any strong view either way without
sufficient evidence.
GerExit
5%: While
this seems like such a low possibility, it does seem that Germany is
becoming more and more isolated from the rest of Europe (with the
possible exception of Finland which seems even more separated, both
physically and fiscally). Is there a point where Germany just decides
that “I’m going to take my ball and go home!” Does it get too
tiring being the “only adult in the room” or at least believing
that you are the only adult in the room? Does Germany believe that
its system is superior enough to withstand the immediate pain from
moving to a much stronger currency? Would they be more comfortable
dealing with the issues of having a the Bundesbank run a new
Deutschemark instead of feeling that they have to constantly act as
the police of the European banking system? At some point, does the
feeling that they are the only owns really sticking to the original
plan become so frustrating that they decide it isn’t worth it?
Would a German exit from the Euro be welcomed by others? In theory, a
Euro without Germany and maybe some other strong members, would sell
off dramatically. It should help the rest of the countries become
more competitive, and if they still allow visa free travel, it won’t
hurt the tourist trade as relatively rich Germans still come to the
Mediterranean to spend their shiny new Deutschemarks. This seems like
a very low probability event as Germany has been a key architect of
the Eurozone and done so much to keep it together, but, it does in
many ways seems to solve the issues faster and more conclusively than
any solution focused on Greece.
What
This Means For Trading
I
think Friday’s outcome and the potential future outcomes boil down
to a few simple things to consider
- Friday’s bounce was rather weak. The S&P and NASDAQ both only managed to climb by 0.6%. Since Europe had already closed down for the weekend, almost all the short covering related to announcements would have to have been done in the U.S. market – making the pop even less compelling. A classic example of “buy the rumor, sell the news”? Treasuries still wound up the day only unchanged as well.
- Unless someone senior from Greece says they are defaulting, or someone senior from Germany says they are kicking Greece out, any headlines from Europe should be ignored. Over time which of the scenarios seems most likely should play out, but until then, this is mostly noise.
- I will be looking to see how Spain reacts – will Rajoy’s opposition view Greece’s extension as a victory for Greece and put renewed pressure on Rajoy? Will the Greek people feel like their leaders sold out too quickly and try to put an actual radical party in charge? It seems that a few days of EU Summits can take the radical out of a party.
- We can now focus on the domestic situation. On earnings and growth and what it means to have a Fed far more interested in “normalizing” policy than intervening at every market blip?
Be
Careful What You Wish For
Yes,
we are all sick and tired of the incessant Greek headlines, but I am
not so sure we will like what we see when we resume focus on our own
economy
I
have to admit that the chart is far less compelling on a longer term
time horizon, but I wanted to end this note with a good segue into
the new “meme” that I expect to dominate the news waves over the
coming weeks – what is going on with the U.S. economy and is it
really as good as the last NFP report suggested?
Germany
Gives Greece Just Enough Rope: Varoufakis Says If Troika Rejects
Reforms "The Deal Is Dead And Buried"
20
February, 2015
As
usual, the fine print of any European "deal" is revealed
not only after the agreement, but after the US market close. So for
all those waiting for the real punchline, here it is - it also is the
reason why Greece got until Monday to reveal the list of "reforms"
it would undertake:
"We’re
in trouble next week if creditors don’t accept Greece’s reforms",
Greek Finance Minister Yanis Varoufakis says. "If
our list of reforms is not backed by the institutions, this agreement
is dead and buried."
That's
bad. But... "But
it’s not going to be knocked down by the institutions."
For
his sake, let's hopes he is correct in predicting what the Troika,
pardon, Institutions will do. Because this is precisely what Schauble
meant when he said that the "Greeks
Certainly Will Have A Difficult Time To Explain The Deal To Their
Voters":
under the conditionality of the Troika's approval, the
Tsipras government now has to walk back essentially all the promises
it made to the Greek people - promises which by some accounts amount
to over €20 billion in additional spending - or the Troika, pardon
Institutions, will yank the entire deal and the Grexit can then
commence.
And
that's the bottom line.
It's
also the reason Schauble was gloating: because he gave the Greek
government just enough rope with which to hang itself.
Then
again, if and when the Tsirpas government is booted out next once the
Greek euphoria turns to disgust and disillusionment, does Germany
really want to negotiate with Golden Dawn instead?
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