The Greek crisis

Europe is not interested in nazism as we have seen in Ukraine. Yanis is 'pugnacious'. The Guardian IS the voice of Empire
Greek and German finance ministers clash at debt relief talks

Finance chiefs can’t agree to disagree over Athens’ debts as Varoufakis brings up spectre of Greek nazism and Schäuble offers 500 German tax collectors

 New Greek finance minister Yanis Varoufakis and German finance chief Wolfgang Schäuble (left) in Berlin. Photograph: Action Press/REX/Action Press/REX

the Guardian

5 February, 2015

Athens’ high stakes brinkmanship with its international creditors appeared no closer to paying off on Thursday, after talks in Germany ended with finance minister Wolfgang Schäuble insisting Greece was responsible for its own plight.

Yanis Varoufakis, the country’s pugnacious new finance minister, ended his tour of European capitals with a tense press conference alongside Schäuble, who repeated his offer to send 500 German tax collectors to Greece to ensure wealthy Greeks pay their taxes and help tackle corruption.

Rolling coverage as finance minister Yanis Varoufakis meets Wolfgang Schäuble, after the ECB hits Greece with the news it will no longer accept its junk-rated debt as collateral

After their meeting in Berlin, Schäuble said he and Varoufakis had “agreed to disagree”; but Varoufakis interjected: “We did not reach agreement because it was never on the cards that we would.”

Later, though he had promised to meet the alarmist warnings of some in the eurozone about the consequences of Syriza’s policies with “a frenzy of reasonableness”, Varoufakis issued a stark warning that ignoring the plight of his countrymen could stoke the rise of nazism.

“When I return home tonight, I will find a country where the third-largest party is not a neo-Nazi party, but a Nazi party,” he said, referring to the far-right Golden Dawn.

Just prior to the Berlin meeting the Russian president, Vladimir Putin, had increased the pressure on eurozone policymakers by inviting the new Greek prime minister, Alexis Tsipras, to talks in Moscow. Tsipras was asked to attend an event on 9 May to mark the end of the second world war.

Schäuble stressed that Germany would “fully respect the mandate” handed to Varoufakis and his colleagues by the Greek electorate in the general election last month, but he said that Germany too has its own democratic pressures.

German public opinion is deeply sceptical about the need for fresh debt relief for Greece, after repeated bailouts since 2010; but Syriza argues that far from being rescued, it has been burdened with a series of impossible-to-repay loans, and has seen growth hobbled by the austerity imposed as a quid pro quo.

Back in Athens, Tsipras told the Greek parliament: “Greece is no longer the miserable partner who listens to lectures to do its homework. Greece has its own voice.”

The radical Syriza government had hoped to receive temporary support from the European Central Bank while it holds debt-restructuring talks with its creditors.

The €240bn bailout from the troika of the European commission, International Monetary Fund and the ECB – which came with stringent conditions, including hefty spending cuts – is due to expire at the end of February.

Syriza has insisted it will not accept an extension of the existing bailout programme; but the financial challenge facing the new government was sharpened on Wednesday when the ECB said it would limit access to emergency liquidity for its banks.

Apparently referring to that decision, which sent bank shares plunging, Tsipras said on Thursday: “Greece cannot be blackmailed because democracy in Europe cannot be blackmailed.”

Greece: The Big Picture Update, And Why Deutsche Bank Thinks Europe Will Fold

Zero Hedge

5 February, 2015

The Greek situation summaries Greece by Deutsche Bank's George Saravelos have consistently been among the best in the entire sellside. His latest Greek update, which is a must read for anyone who hasn't been following the fluid developments out of southeast Europe, which fluctuate not on an hourly but on a minute basis, does not disappoint.

But while his summary of events is great, what is of far greater significance is his conclusion, namely that ultimately Europe will fold: "we consider the most likely outcome to be a Eurogroup offer of a new Third program" and "given that the current program expires this February the offer to negotiate a new Third program may provide political room for the government to sit on the negotiating table. At the same time such an offer is very likely to be attached to strict conditions, with the willingness to accommodate t-bill issuance an open question. Developments overnight suggest that this has become less likely, imposing maximum pressure on the government to reach agreement within a matter of week."

If DB is right, and if Europe folds, the question then is what concessions will the ECB and the Eurozone be prepared to give to Italy, Spain and all the other nations where anti-European sentiment has been on a tear in recent months, and especially in the aftermath of Syriza's stunning victory.

From Deutsch Bank

Greek Update

Over the last couple of weeks we have framed developments in Greece around three questions:

First, under what conditions would the Troika be willing to continue negotiating with Greece?

Second, does the Greek government accept these conditions?

Third, how does the ECB link Greek bank financing to program negotiation?

Yesterday evening we got an answer to the last question sooner than expected. 

The ECB no longer considers Greece to be under a program, and the rating waivers on Greek government-based collateral are being removed. We estimate that Greek bank funding at the ECB financing windows currently runs between 70-80bn EUR, of which approximately 30bn relies on AAA EFSF-based collateral. 

As a result the remaining funding (or about 50bn) will now have to shift to ELA from next week. Even if this decision is likely to have materialized when the program expired at the end of February, there are two broader implications.

First, the decision shows that the ECB is feeling increasingly uncomfortable providing financing to Greek banks while negotiations are under way. This in turn raises the more important question of how long and how large any ELA provision is going to last. ELA usage is subject to a cap that isunder bi-weekly review and requires a 2/3 majority of Governing Council votes to be blocked.The government said that the cap was raised by 10bn this week to be reviewed after developments in the European Council and Eurogroup meetings in the next two week.

Second, the ECB decision shows that the ECB is very unlikely to accommodate increased t-bill issuance from the Greek government. There are currently two caps on t-bill usage. The first applies to total issuance and is currently set by the Troika at 15bn. The second applies to the t-bills that can be directly submitted to the ECB windows by Greek banks and currently stands at 3.5bn. The ECB kept this unchanged in yesterday's meeting. The 11.5bn of t-bills not submitted to the ECB are currently financed by other types of collateral.

Big picture, the above two developments are likely to further accelerate timelines and pressure on Greece. The government's strategy has been to secure a window between March (when the current program expires) and July (when a large GGB ECB redemption is due) over which to negotiate a new program. Time for this negotiating window would have been bought by both Troika and ECB willingness to accommodate increased t-bill issuance to pay for ongoing cash needs over the course of Q2. We have yet to hear from the Eurogroup on its willingness to raise the overall t-bill cap, but even if this materializes today's ECB decision signals rising discomfort for the central bank to accommodate this, even indirectly via other types of collateral.

This then leaves the remaining two questions above that need to be answered over the next two weeks: the conditions under which the Troika/Eurogroup would be willing to negotiate with the Greek side and the Greek government's response. 

The most confrontational outcome would be a Troika requirement that the current program review is completed, requiring a request from the Greek government to extend it before February 28th. A more conciliatory outcome would be an offer for negotiations on a new third program,** but accompanied by a pre-commitment (most probably written) by the Greek government to respect certain conditions. Irrespectively, the t-bill decision will be key: assuming the Troika and ECB are unwilling to approve higher issuance, the negotiations would have to be completed by the earliest of any potential ELA cap being hit due to deposit outflows or the Greek government running out of cash to pay ongoing budget needs. The exact timing of the latter remains unclear, but with Greek budget execution under very significant pressure due to the change in government and weakening economy this is unlikely to last beyond April.

The situation remains very fluid but as things stand we consider the most likely outcome to be a Eurogroup offer of a new Third program. Greece in any case has lost market access making ECCL eligibility unlikely, and given that the current program expires this February the offer to negotiate a new Third program may provide political room for the government to sit on the negotiating table. At the same time such an offer is very likely to be attached to strict conditions, with the willingness to accommodate t-bill issuance an open question. Developments overnight suggest that this has become less likely, imposing maximum pressure on the government to reach agreement within a matter of week.

* * *

Thursday February 5th - Eurogroup working group (EWG, the institution responsible for preparing Eurogroup meetings)

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 t-bill auction to cover EUR 1.4bn maturity on 13th

Wednesday February 11th - potential emergency Eurogroup

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, 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

Whispers Of Greek Capital Controls Begin

Zero Hedge

5 February, 2015

That didn't take long: just hours after Greece entered the ECB countdown mode, with now just 23 daysuntil midnight on February 28, when the ECB is set to yank the final pillar of liquidity support, the ELA - as it has warned before - it is time to start contemplating Plan B, or rather plan Z. A plan, which as described by Nordea's analyst Jan von Gerich, would be quite unpleasant for that nearly extinct class of Greeks, bank depositors, because the "plan", or rather blueprint, is a well-known one: capital controls.

As Nordea points out, ECB’s decision to restrict Greek bank access to direct liquidity lines risks increasing uncertainty among depositors.  As a result depositors may decide to withdraw more money from Greek banks. Most of these outflows would likely be replaced by ELA funding, increasing risks for Eurosystem.

However, if ECB becomes more uncomfortable with situation or Greek banks risk running out of collateral, Greece may need to impose Cyprus-style withdrawal    limitations and capital controls.

Gerich notes that while there’s been some progress in talks, Greece needs to back down further for deal to be reached, although as he also observed, the news flow needs to become worse for Greece to drive broader markets to more notable extent.

Why is this important? Because as we have said from day one, what is going on now between Greece and Europe is a game of leverage, leverage which can now be quantified: For the ECB, it is measured by how long the lines are in front of Greek ATMs; for Greece, it is inversely proportional to the level of the Stoxx 50 (and to an extent the S&P500).

And just in case some think that capital controls is a fringe plan, one that will never see broad acceptance, here are the key highlights from Bloomberg's "One Way Greece Can Keep Its Banks Alive."

An outflow of deposits from Greek banks will put pressure on the government to limit how much money people can withdraw or transfer outside the country as European Union nations lose patience with providing a lifeline.

Imposing capital controls, as Cyprus did two years ago when its banks faced a crisis, would buy time for Prime Minister Alexis Tsipras’s government to negotiate debt relief, according to economists including Daniel Gros, director of the Centre for European Policy Studies in Brussels.

“Capital controls may be the only option to stop the bleeding in the banking system,” Gros said in an interview.

Greek banks probably lost about 21 billion euros ($24 billion) of deposits in the past two months, or 11 percent of the total as of the end of November, according to the ECB and estimates last week by JPMorgan Chase & Co.

Depositors are withdrawing money now because they’re worried a refusal by the government to extend the bailout when it expires at the end of the month could lead to an exit from the euro area. That would mean waking up one morning and finding their savings converted to drachma, which would face a steep devaluation. Putting the money in another European bank or keeping it as cash at home would protect them from losses.

... Customers withdrew 6 billion euros in December, central bank data show. They pulled out an additional 11 billion euros in the first three weeks of January, and the total for the month may have reached 15 billion euros, JPMorgan analysts estimated. That would be more than was withdrawn in May 2011, the month with the biggest drop in the earlier crisis.

But bank run aside, what happens if/when D-Day comes and Greece still has no funding options?

If the central bank refuses to extend this type of lending, Greek banks would run out of cash quickly, as they already rely on ECB funding for about 70 billion euros they can’t replace because they have been shut out of capital markets since November.

That would force Greek banks to cut lending to companies, consumers and the government. They’d be unable to roll over treasury bills and might recall loans. Greece would have to abandon the euro and print its own currency to fund its banks.

“Given how extreme this option is, the ECB might instead impose a Cyprus-like solution of withdrawal and capital-transfers controls,” said Nicholas Economides, an economics professor at New York University.

While only national governments have the power to impose capital controls, and doing so is in violation of the European Union treaty, the ECB gave tacit approval when Cyprus did just that in 2013. The central bank had threatened to cut off all liquidity to Cypriot lenders if the government didn’t reach a deal with its European partners.

What Europe Plan B, or rather Plan Z, would look like:

“If the deposit flight is continuing while things drag on, the euro zone wouldn’t want to increase its exposure to Greece through rising ECB financing,” said Ruparel. “Then they’d push for capital controls as a way of limiting further exposure in case things don’t work out and Greece ends up exiting. It’s an option nobody wants, but it will become likelier the longer the type of brinkmanship we’ve seen recently continues.”

Even though they’ve been loosened, capital controls remain in place in Cyprus. While they have been successful at stemming deposit outflows and stabilizing the banking system, the country is stuck in a three-year-long recession.

In the case of Greece, controls probably would only work for a few months as Tsipras’s government negotiates a new debt deal with its European creditors, according to Benn Steil, director of international economics at the Council on Foreign Relations in New York. Without an agreement, restrictions on withdrawals wouldn’t be enough to keep Greece in the euro zone.

“The Grexit could happen slowly, not in a big bang as we always imagine,” Steil said. “It could come after capital controls and other ways of scrambling to continue.”

The sad conclusion, if only for innocent Greek bystanders in this epic middle-class plunder designed to make trillionaires out of billionaires:

“The experience of Cyprus suggests that you cannot completely rule out capital controls any more as a policy option,” said Jens Bastian, a former member of the European Commission’s Greek task force who’s now an independent analyst based in Athens. “The situation isn’t so dire yet, but it could get there.”

Capital controls would be painful and unpopular with the Greek public, putting even more pressure on Tsipras to reach an agreement sooner rather than later, according to Gros of the Centre for European Policy Studies.

“The popularity of the government will plummet, and the economy would be hurt too,”Gros said.

Of course, the ECB knows very well that should a bank run commence then the days of the Tsipras government - capital controls or not - are numbered. Which is preicsely why yesterday it tried to precipitate one. And since, as we noted earlier, the only marker of Greek leverage is the response of the global capital markets, today's pre-determined market ramp, which started with the SNB's intervention in the EUR and has since transformed into a wholesale central bank binge fest across all assets (except gold of course), the corresponding reaction in risk is precisely meant to smash any trace of leverage the new Greek finmin may have hoped he had.

"NATO and the United States should change their policy because the time when they dictate their conditions to the world has passed," Ahmadinejad said in a speech in Dushanbe, capital of the Central Asian republic of Tajikistan

Greece Refuses To Back Down: "Government Will Do As Promised" Tsipras Says

With an increasingly vitriolic tone, the new Greek government has come out swinging today with leader Alexis Tsipras making it clear that he will implement the election pledges the people of Greece voted for:

• A NEW GREEK GOVT WILL BARGAIN TOUGH, AND PUT A FINAL END TO THE TROIKA AND ITS POLICIES
  
  
• WE MANAGED TO DECONSTRUCT THE EUROPEAN STATUS QUO THAT WANTS MORE AUSTERITY AND LESS DEMOCRACY

It took one week, Tsipras chides, to get European leaders to talk about the real problems and Greece will negotiate hard to "put an end to Troika."

Tsipras adds:

• *GREECE'S TSIPRAS SAYS GREEK PEOPLE WRITING HISTORY, DETERMINED
  
  
• *TSIPRAS SAYS WILL NOT ALLOW FIRESALE OF NATIONAL WEALTH
  
  
• *TSIPRAS SAYS NEW GOVT WILL NEGOTIATE HARD, PUT AN END TO TROIKA
  
  
• *TSIPRAS SAYS GOVT TO PRESENT ITS OWN ROADMAP TO EXIT CRISIS
  
  
• *TSIPRAS SAYS ONLY TOOK ONE WEEK TO CHANGE EU DISCUSSION AGENDA
  
  
• *TSIPRAS: TOOK ONE WEEK TO GET EU TO TALK ABOUT REAL PROBLEMS
  
  
• *TSIPRAS SAYS WILL IMPLEMENT ELECTION CAMPAIGN PLEDGES
  
  
• *TSIPRAS SAYS GOVT DOESN'T THREATEN BALANCE IN EUROPE
  
  
• *TSIPRAS SAYS GOVT DETERMINED TO OVERHAUL PUBLIC ADMINISTRATION
  
  
• *TSIPRAS SAYS GOVT HAS CONCRETE, STRATEGIC NEGOTIATION PLAN
  
  
• *TSIPRAS: GOVT PRESENTED ITS PLAN TO CREDITORS, GAINED ALLIES
  
  
• *TSIPRAS SAYS WAITING WITH GREAT INTEREST FOR GERMAN PROPOSALS
  
  
• *TSIPRAS SAYS GOVT COMMITTED TO EU RULES, WILL RESPECT THEM
  
  
• *TSIPRAS SAYS NOT AIMING TO CREATE NEW DIVIDE IN EUROPE
  
  
• *TSIPRAS SAYS AUSTERITY IS NOT A EUROPEAN UNION RULE

And then the ECB chimes in...

• *KNOT SAYS ECB DOESN'T SEE PROOF THAT GREEK PROGRAM ON TRACK

*  *  *

And Tsipras counters...

• *TSIPRAS SAYS GOVT GUARANTEES GREEK BANK SYSTEM DEPOSITS SAFE

"We will make the impossible, possible to turn things around in Greece"

*  *  *

• *TSIPRAS SAYS WE NEED TO REBUILD COUNTRY FROM THE BEGINNING
  
  
• *TSIPRAS SAYS GREEK, EUROPEAN DEMOCRACY CANNOT BE BLACKMAILED

Chicken continues...

ECB Revokes Greek Bonds as Collateral; ECB vs. Novices; Brass Knuckles

Global Economic Analysis

4 February, 2015

It's difficult keeping up with the news. As soon as I finished Germany's "Time Pressure" Thesis; Noose Tightens on Europe, significant news on the debt standoff hit the press.ECB Cancels Acceptance of Greek Bonds as Collateral

An ECB press release today discusses Eligibility of Greek bonds used as collateral in Eurosystem monetary policy operations.

In a nutshell, the ECB unexpectedly and suddenly canceled acceptance of Greek bonds as collateral for liquidity funding unless Greece honors the existing deal.

Until that happens, the Greek central bank, not the ECB, will have to take care of liquidity needs related to runs on Greek banks.

The ECB press release states the situation with little fanfare as follows: "The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules."Brass Knuckles

Reuters reports ECB Cancels Soft Treatment of Greek Debt in Warning to Athens.

The title is silly. When did the ECB ever provide Greece with a "Soft Treatment"?

As I have pointed out, the much abused word "solidarity" has come to mean "Do what we say, or else!"ECB vs. Novices

Prior to starting this post, I added an addendum to Germany's "Time Pressure" Thesis; Noose Tightens on Europe. 

 Addendum:

A Bloomberg View on "Greece's Hidden Haircut Proposal" just came my way: "By the time the EU is done with the Syriza novices, Greece's debt may be a little lower, but the government's radicalism will be a tattered banner," says author Leonid Bershidsky.

Bershidsky is another in a long line of persons who do not understand simple math. Time will tell who is waving the "tattered banner" over what can and cannot be paid back. My bet, one way or another, is on the alleged "novices".

Who is the Novice?

One way or another, there is going to be a major haircut. Here are the choices.

1. An adult meeting of minds takes place as to what can or cannot be paid back.
2. Parties agree to yet another can-kicking exercise that prolongs the agony at increasing expense down the road.
3. Greece suddenly defaults with massive repercussions now instead of later.

Like it or not, there are no other choices. Normally, one would expect option number 2. That is what bureaucrats most often do. 
However, it's increasingly likely that both Syriza and Germany have both had enough. German citizens support the "no-haircut thesis" by a 68%-28% margin.

Admission of Obvious Truth 

Meanwhile, in a interview today on Zeit Online, Greek finance minister Yanis Varoufakis accepts the obvious truth: "I'm the Finance Minister of a Bankrupt Country" 
Please read the interview.
Also read Alexis Tsipras "Open Letter" to German Citizens Regarding Extend-and-Pretend Unserviceable Debt.
Varoufakis and Tsipras are political novices, but both seem to be masters of game theory, and both know full well (and are willing to admit) Greece is bankrupt.
The honest admission, "Greece is bankrupt" should take them down the correct path, that extend-and-pretend is precisely the wrong thing to do.

Spreading the Pain 

It's painful for any politician to say "we are bankrupt". Yet that admission paves the way for other things.
For the sake of Greece, I actually hope Syriza keep its pledge to negotiate a debt reduction.
Then, if the ECB and Germany do not bend, history will eventually show them to be the novices, not Greece.

Exit Math
I wrote about exit math twice recently.

• January 22: Revised Greek Default Scenario: Liabilities Shifted to German and French Taxpayers; Bluff of the Day Revisited 
  
  
• January 27: Greek Payback Math at 0% Interest

If Germany and the eurozone do not bend significantly, Greece may very well come to the conclusion it has little to lose and everything to gain in the long haul by telling the Troika to go to hell.

One Step Closer to Solution

My math says Grexit will be painful for Greece, but it will be far more painful for Germany. 
There is much merit regarding a global debt solution in proving that statement, even if Greece does not properly take advantage of the opportunities Grexit would provide.
Meanwhile, I repeat my January 9 warning once again: Another Run on Greek Banks Begins; Get Out While You Still Can; Buy Gold