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Sony Kapoor
Having dealt personally with both #Schauble & #Varoufakis - if anyone’s a bully, its #Schauble Nasty Op-Ed from @welt
Greece Gambles On "Catastrophic Armageddon" For Europe, Warns It "Only Has Weeks Of Cash Left"
7
February, 2015
One
of the bigger problems facing the new, upstart Greek government,
which has set before itself the lofty goal of overturning 6 years of
oppressive European policies and countless generations of Greek
cronyism, corruption and tax-evasion is not so much the concern about
deposit outflows and bank runs - even though it most certainly will
be in the next few days unless the Tsipras government finds some
resolution to the dramatic standoff with Merkel and the ECB - but
something far more trivial: running
out of money.
Recall
that two weeks into the Greek elections, Greece was rocked by a dire,
if entirely underappreciated development, when its already
"tax-paying challenged" population decided to completely
hold off paying any taxes in advance hopes that the Tsipras
government will "overturn" austerity. We
wrote:
... while there will be no official confirmation whether Greece did or did not have a bank run for months, unless of course some bank keels over and dies in the interim, one thing is certain: with an increasing probability they may not have a "continuity-promoting" government in less than two weeks, Greeks tax remittances to the government, which were almost non-existent to begin with, have ground to a halt!
According to a second Kathimerini report, budget revenues have slumped over the last few days as a result of the upcoming elections and taxpayers’ uncertainty about the future: "Most taxpayers have chosen to delay their payments, given that the positions of the two main parties leading the election polls are diametrically opposite: Poll leader SYRIZA promises to cancel the ENFIA and even write off bad loans, while ruling New Democracy acknowledges the difficulties but is avoiding raising issues that would generate problems and fiscal consequences.
The dwindling state revenues will not only hamper the next government’s fiscal moves, but, given that the fiscal gap will expand, also negotiations with the country’s creditors.
The tax collection mechanism appears to be largely out of action while expired debts are swelling due to taxpayers’ wait-and-see tactics and the reduction in inspections.
So
for battered, depressed Europe "austerity" really meant
"taxation" - it is no surprise then why so many in
peripheral Europe, who for the past 7 years have not seen any
benefits from Germany's delay in reintroducing the Deutsche Mark (and
keeping its export industry humming, and Deutsche Bank solvent,
courtesy of the much lower Euro), hate "austerity"
so much: after all there really should be no "austerity"
without representation and most European voices hardly matter in a
monetary "Union" where only bankers and unelected eurocrats
are heard.
But
going back to the main topic, namely the Greek liquidity situation,
it was none other than the Eurogroup which late on Friday gave Greece
a 10 day ultimatum to cede all demands and resume work under the
Bailout program, or face a liquidity collapse and effective expulsion
from the Eurozone. Which means suddenly Europe is engaged in the
biggest bluff since 2012, as Greece and Europe both desperately try
to outbluff each other that the "adversary" need it more
than vice versa.
The
problem is that Greece may not even have 10 days. As
the WSJ reports,
"Greece
warned it was on course to run out of money within weeks if it
doesn’t gain access to additional funds, effectively
daring Germany and its other European creditors to let it fail and
stumble out of the euro."
Greek Economy Minister George Stathakis said in an interview with The Wall Street Journal that a recent drop in tax revenue and other government income had pushed the country’s finances to the brink of collapse.
“We will have liquidity problems in March if taxes don’t improve,” Mr. Stathakis said. “Then we’ll see how harsh Europe is.”
As
we reported last month, "Government revenue has declined sharply
in recent weeks, as Greeks with unpaid tax bills hold back from
settling arrears, hoping the new leftist government will cut them a
better deal. Many also aren’t paying an unpopular property tax that
their new leaders campaigned against. Tax revenue dropped 7%, or
about €1.5 billion ($1.7 billion), in December from November and
likely fell by a similar percentage in January, the minister
said. Other
senior Greek officials said the country would have trouble paying
pensions and other charges beyond February."
Said
otherwise, when Yanis Varoufakis responded to Europe that "Greece
already is bankrupt"
he knew exactly what he was talking about.
And
as the WSJ further details, this means that the infamous ultimatum on
Greece may have been set by none other than Greece itself
Greece has made no secret of its precarious financial position, but the minister’s comments suggest the country has even less time than many policy makers thought to resolve its standoff with Europe.
Eurozone officials have asked Greece to come up with a specific funding plan by Wednesday, when finance ministers have called a special meeting to discuss the country’s financial situation.
The country needs €4 billion to €5 billion to tide it over until June, by which time it hopes to negotiate a broader deal with creditors, Mr. Stathakis said, adding that he believes “logic will prevail.” If it doesn’t, he warned, Greece “will be the first country to go bankrupt over €5 billion.”
What
happens then: "If the Greek government runs out of cash, the
country would be forced to default on its debts and reintroduce its
own currency, thus abandoning the euro. Most of the €240 billion in
aid that Europe and the International Monetary Fund have pumped into
the country would be lost."
Of
course, Greece knows all this. The bigger question is what does
a Grexit
mean for Europe.
Recall it was in May 2012, just around the time of the second Greek
bailout, that Charles Dallara, who as head of the International
Institute of Finance (IIF) spent months in Athens negotiating the
largest ever sovereign debt restructuring, said that "the damage
to the rest of Europe from Greece leaving the euro would be"somewhere
between catastrophic and Armageddon."
"I think that it (a Greek exit) is possible, but I wouldn't call it inevitable and I wouldn't even call it likely because the costs for Greece, for Europe and for the global economy are likely each in their own way to be immense."
"The pressures on Spain, Portugal, even Italy and conceivably Ireland could be immense and the need for Europe to step up with much greater support for the banking systems would be substantial."
As soon as Greece has exited, we expect the markets will focus on the country or countries most likely to exit next from the euro area. Any non-captive/financially sophisticated owner of a deposit account in that country (or in those countries) will withdraw his deposits from banks in countries deemed at risk - even a small risk - of exit. Any non-captive depositor who fears a non-zero risk of the future introduction of a New Escudo, a New Punt, a New Peseta or a New Lira (to name but the most obvious candidates) would withdraw his deposits from the countries involved at the drop of a hat and deposit them in the handful of countries likely to remain in the euro area no matter what - Germany, Luxembourg, the Netherlands, Austria and Finland.
The funding strike and deposit run out of the periphery euro area member states (defined very broadly), would create financial havoc and mostly like cause a financial crisis followed by a deep recession in the euro area broad periphery.
...
A banking crisis in the euro area and in the EU would most likely result from an exit by Greece from the euro area. The fundamental financial and real economy linkages from the rest of the world to the euro area and the rest of the EU are strong enough to make this a global concern.
And
of course, there was Carmel's
presentation from the summer of 2012,
comparing the costs to Germany from a Euro staying together versus
falling apart:
That
is precisely the gambit the Greece is playing right now: in fact,
that is the only gambit it has left - one final gamble that kicking
Greece out of the Eurozone will have far more devastating
consequences on the Eurozone, where not only is the ever-persistent
threat of deposit bank run from the periphery one flashing red
headline away, but where one after another anti-European party, from
Spain's Podemos to Marine Le Pen's surge in France, are ascendent and
may seek to recreate the Greek example unless Germany steps in in the
last minute and concedes the Greek demands.
The
problem is that as Merkel understands very well, should she concede
to Greece, then she would be expected to concede to Italy, and Spain,
and Portugal, and Ireland, and anyone else who came knocking at her
door with a loaded gun and threatening to commit suicide. The WSJ
picks up on this as well:
Europe wants Athens to commit to further labor-market and other reforms as a precondition for more money. The new government is refusing, arguing that it was elected to turn back many of the painful measures Europe and other creditors have demanded of it.
Berlin worries that the eurozone would lose leverage over Athens if it gives into its request for an interim loan. Without a binding agreement from Greece to continue its reform program, officials say Germany is unlikely to back down.
Berlin, which is counting on financial pressures to force the Greek government’s hand, believes time is on Germany’s side.
And
for now, it is correct: "Those pressures are being felt across
Greece’s economy. Its banks lost €8 billion to €10 billion in
deposits in January alone, government officials say. The banking
system’s woes were exacerbated by the ECB’s decision earlier in
the week to no longer accept Greek government bonds as collateral
from banks seeking funds."
As
Zero Hedge pointed out several times last week, both the ECB, the
Eurogroup and even S&P, are no longer concerned about starting a
bank run in Greece, as this would be the surest way to crush support
for the new Greek government and force it to the negotiating table
with its tale between its legs. Furthermore, in order to avoid giving
the Greeks the satisfaction that their strong-arm policy is working,
the central banks have done everything in their power to keep stock
markets afloat and levitating this week, to avoid giving the
impression that anyone in the world is concerned about contagion
side-effects should Greece in fact exit the Eurozone. Or as we put
it:
This
strategy may, however, backfire and result in even more support for
the government which unlike its predecessors who were perceived
merely as Europe's lackey muppets, refuses to concede to Merkel,
which is a distinct risk for the German chancellor:
Germany’s strong-arm strategy carries substantial risk. In addition to possibly triggering Greece’s exit from the euro, it carries political overtones.
Many Europeans already view Germany as the continent’s unyielding paymaster. Refusing to compromise with Greece’s new government over a few billion euros would further cement that image and open Berlin to accusations that it is ignoring Greece’s plight and riding roughshod over the democratic process.
Such resentments could fuel Europe’s other ascendant anti-austerity movements, particularly in Spain, where the Podemos party, modeled on Greece’s governing leftists, has recently surged in the polls.
And
that's the gamble in a nutshell: Greece has already bluffed with
everything it has (even raising the specter that it will cooperate
with Russia if Europe kicks it out, giving Putin a foothold on the
continent) while Europe desperately pretends that Charles Dallara's
warning from less than three years ago is no longer relevant and that
a Grexit is not only neither "catastrophic" nor
"Armageddon",
but instead is welcome and perfectly normal.
We
should know who will crack first as soon as this week, just before or
during the Eurogroup emergency meeting on February 11, although
Greece already appears to be regretting its liquidity shortfall
threat, as Reuters
reported earlier today it
"will not face any cash crunch while negotiations with its euro
zone partners on a new programme to roll back austerity take place,
its deputy finance minister said on Saturday. "During
the time span of the negotiations there is no problem (of liquidity).
This does not mean that there will be a problem afterwards,"
Deputy
Finance Minister Dimitris Mardas said on Mega TV. "Asked whether
state coffers may encounter a cash crunch if talks drag on until May,
the minister said he did not expect the negotiations over a new deal
to last that long."
Indeed,
if Greek negotiations fail, read if the bluff does not succeed, by
May Greek state coffers will likely be getting funding from Beijing
and or Moscow.
Which then begs the question: has Greece indeed lost
everything, allowing it to be finally
free to do anything?
Additional
reading: Game
theory and euro breakup risk premium
This, however is from Reuters
Greece
says has no cash
problem, to present plan
next week
7
February, 2015
Greece
said on Saturday it had no short-term cash problem and that it will
hand its European Union partners a comprehensive plan next week for
managing the transition to a new debt deal.
The
EU has warned time is running out to avoid a financing crisis in
Greece.
The
new left-wing government in Athens has rejected the austerity that
was forced upon the country by an EU/International Monetary Fund
bailout and instead says it wants a "bridge agreement"
until it has negotiated a new deal.
"We
will present a comprehensive proposal on Wednesday," Finance
Minister Yanis Varoufakis said, referring to a meeting of euro zone
finance ministers in Brussels on that day.
Varoufakis
was attending a cabinet meeting called to prepare the government's
overall policy program, which Prime Minister Alexis Tsipras will
present to parliament on Sunday.
On
Friday, Jeroen Dijsselbloem, who chairs the Eurogroup of euro zone
finance ministers, told Reuters that Greece had to apply for an
extension of its reform-for-loans plan by Feb. 16 to ensure the euro
zone keeps backing it financially.
This
is essentially an extension of the current bailout, something Greece
has said it does not want and will not accept. It is due a 7.2
billion euro trance from the EU/IMF bailout, which it says it does
not want because of the austerity strings attached.
Instead,
Athens wants authority from the euro zone to issue more short-term
debt to tide it over until a new deal is agreed, and to receive
already-agreed profits that the European Central Bank and other
central banks have gained from holding Greek bonds.
Greece
faces interest rate payments of around 2 billion euros over February
and should repay a 1.5 billion euro loan to the IMF in March.
That
has raised concerns the country may suffer a cash crunch, but this
was dismissed on Saturday by the Greek official in charge of the
government's accounts.
"During
the time span of the negotiations there is no problem (of liquidity).
This does not mean that there will be a problem afterwards,"
Deputy Finance Minister Dimitris Mardas said on Mega TV.
Asked
whether the state may suffer a cash crunch if talks drag on until
May, the minister said he did not expect the negotiations over a new
deal to last that long.
"Even
if they did, we can find money," he said.
Keiser
Report: Greece,
Beware Bureaucrats &
Bankers Bearing Bailouts
In this Keiser Report, Max Keiser and Stacy Herbert warn Greece to beware bureaucrats and bankers bearing bailouts. In the second half, Max continues with the second part of his interview with Kerry-Anne Mendoza about her new best selling book, “Austerity: The demolition of the welfare state and the rise of the zombie economy.”
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