The Greek debt crisis - 02/03/2015

First Germany, Now ECB Rejects "Latest Greek Bailout Plan"

Zero Hedge,

3 February, 2015

So much for the Greek "conciliatory proposal" story in which Greece was said to "drop" its debt writedown request, driven by yesterday's FT article, and the catalyst for Monday's late day market surge.

As reported earlier today, first it was Germany's turn when it "threw up all over Varoufakis proposal, calling Greek plan "Half-Baked." And now, somewhat poetically, is the FT's turn to yank the other stool from underneath those who saw yesterday's development as even remotely meaningful as opposed to merely attempts by Greece's restructuring advisor Lazard to thrown anything at the wall and see what sticks, following a report that "the European Central Bank is resisting a key element of the Greek government’s new rescue plan, potentially leaving Athens with no source of outside funding when its international bailout expires at the end of the month."

Which, incidentally, is what we meant when, commenting on the revised Greek proposal which is yet another "haircut" in all but name, we said yesterday that it is "something which the ECB will never agree with."

As a reminder, Yanis Varoufakis, Greek finance minister, had proposed to European officials that Athens raise €10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is agreed with its eurozone partners. Recall that February 28 is the latest and greatest D-Day for Greece, and as the ECB has made quite clear before, a deal has to be made by that date or else all bets, Greek bank funding will be cut off, but not before disastrous bank runs rock the nation in the days and hours preceding.

So here comes the latest lob by the ECB, in what is nothing but a game of "who has the more leverage."

But the ECB is unwilling to approve the debt sale. It will not raise a €15bn ceiling on T-bill issuance by the requested €10bn, according two officials involved in the deliberations. “The Greek plan relies fully on the ECB,” said another eurozone official briefed on the talks. “The ECB will play hardball.”

Without T-bill financing, Athens will exit its bailout without access to emergency funding for the first time since the first Greek bailout began in May 2010.

The ECB’s stance raises the stakes in the stand-off between the anti-austerity government in Athens and its international creditors, which if unresolved, could end with Greece running out of cash within weeks.

It is also likely to puncture a sense of optimism among investors over Greece’s alternative rescue plan and a softening of its insistence on debt cancellation, which lifted the Athens stock market 11.3 per cent on Tuesday and pared 10-year borrowing costs by nearly a full percentage point.

At the end of the day, it was and always has been about one simple thing: who has leverage, and who is overplaying it.

Despite pressure from several EU leaders, officials who have met Mr Varoufakis say he has insisted the new government cannot ask for an extension for political reasons, since it would send a signal they are willing to go along with the current bailout — a message Mr Varoufakis reiterated at meeting on Monday in London with leading bankers.

“They realise their leverage is low but they feel they are on a mission, and he gives the impression that they are prepared to risk a lot,” said one banker at the London meeting. “Not renewing the programme is just an illustration. He was very clear that they will not ask for an extension.”

So with this particular avenue a dead end, the market hasn't even digested the news and here comes yet another media report citing "circles", this time Germany's FAZ, which reports on the latest attempt by Lazard to throw a few more proposal at the European wall and see if any one will stick. To wit, via BBG:

• GREECE OFFERS TO SWAP DEBT FOR BANK SHAREHOLDINGS, FAZ REPORTS
  
  
• GREECE OFFER WOULD COVER EU41 BILLION IN BANK BAILOUT: FAZ

It is unclear if Greece is in effect offering to do a public debt for private equity swap, in the process handing over control of its otherwise insolvent banks explicitly to existing holders of Greek debt (hint: they are already involuntary owners of the Greek banks), but whatever the proposal is, it will fail until Europe makes it very clear to the upstart Greek negotiators that whatever leverage they think they have, does not exit.

Which brings us back to what Merkel's caucus leader Volker Kauder said earlier today:

"We’re not going to play this game,” Kauder tells reporters in Berlin ahead of CDU/CSU caucus meeting. “I’m not ready to comment on half-baked plans every day. The fact remains that we have agreements with Greece and not with a government -- and these agreements have to be adhered to.”

... and, as we also said, we are now back to square one.

In other words, absolutely nothing has been resolved which is par for the course for Europe, but the momentum of Greek leverage has been broken and now it is only a matter of time before the new Greek government admits it is, for all intents and purposes, a continuation of the Pasok/ND regime where it does whatever Europe tells it to do. Unless of course, Tsipras is willing to actually make good on his pre-election promises, something which would now necessitate a full break from the Eurozone, which it has now become clear, it isn't prepared to do. Which, sadly for Greece, also means it now has absolutely zero leverage because its only trump card was the threat of a Grexit, a trump card it lost in less than 10 days.

Back To Square One: Germany Throws Up All Over Varoufakis Proposal, Calls Greek Plan "Half-Baked"

Zero Hedge,

2 February, 2015

If there was any confusion how Germany would react to the latest Greek plan, even though as we explicitly stated yesterday, the "new" Greek plan is really the "old" Greek plan but repackaged semantically for appeal to German taxpayers, even as the proposal to involve Europe's public entities in a distressed debt restructuring is a non-starter, all confusion can be now abandoned following remarks by Merkel's ally Kauder in which he not only called the Greek debt plan "half-baked" saying he will no longer respond to new proposals from Athens "every day", but making it clear that there will be no renegotiation of the existing bailout proposal saying "we have agreements with Greece and not with a government - and these agreements have to be adhered to."

From Bloomberg:

• Volker Kauder, the caucus leader for Chancellor Angela Merkel’s Christian Democratic-led bloc in German parliament, calls Greek debt recommendation “half-baked” demands a refrain from new proposals “every day.”
  
  
• "We’re not going to play this game,” Kauder tells reporters in Berlin ahead of CDU/CSU caucus meeting. “I’m not ready to comment on half-baked plans every day. The fact remains that we have agreements with Greece and not with a government -- and these agreements have to be adhered to.”
  
  
• Greek Prime Minister Alexis Tsipras’s new government has a right to make proposals, though must bear consequences
  
  
• “The German tax payer mustn’t be held liable for the decisions of this leftist-populist government,” Kauder says. “It’s up to Greece to decide.”
  
  
• Troika of ECB, IMF and Commission must remain as negotiating partner with Greece: Kauder
  
  
• “I don’t like the tone of voice out of Athens at all,” Kauder says. “That’s not the way to talk to one another in Europe.”
  
  
• “There are new proposals and new reports coming out of Greece all the time and all of Europe and beyond seems to be holding its breath,” Kauder says
  
  
• “A government should first of all reflect, should make concrete proposals and not present something new every day,” Kauder says
  
  
• “The new Greek government doesn’t create any trust this way,” Kauder says

All of this takes place after moments ago Merkel made the record-high DAX unhappy when she said the Greek talks would likely drag on for months.

And just like that, we are back to square one, even though futures are now almost 60 points higher form where they were this time yesterday.

Mission accomplished.

From the Guardian

Greece finance minister’s soothing comments raise hopes and impress markets

Syriza’s Marxist economist Yanis Varoufakis woos European leaders and markets with talk not of write-offs but of linking Athens’ debt to growth

 Greek finance chief Yanis Varoufakis, right, reaches out to shake hands with his Dutch counterpart Jeroen Dijsselbloem. Photograph: Lefteris Pitarakis/AP

the Guardian,

3 February, 2015

Hopes for a deal over Greece’s €315bn (£240bn) debt buoyed markets on Tuesday as new finance minister Yanis Varoufakis stepped up his efforts to get the backing of the country’s creditors.

Varoufakis, the Marxist economist appointed to the post after last week’s election, will meet the head of the European commission, Jean-Claude Juncker, and Mario Draghi, head of the European Central Bank on Wednesday, following talks with his finance counterparts in France, Britain and Italy.

Soothed by comments from Varoufakis on Monday that Greece was not attempting to write off its debts, the Athens stock market closed more than 11% higher while the FTSE 100 index in London was up more than 1% and stocks in Italy and Spain up more than 2.5%. Yields on government bonds fell, indicating tensions were easing.

Varoufakis, who is proposing Greece’s debt repayments be linked to economic growth, will face a showdown with the German finance minister, Wolfgang Schäuble, on Thursday. Germany is expected to be tough to win over in an any attempt to relieve the debt repayments facing Greece, which was bailed out by the European Union, the European Central Bank and the International Monetary Fund. The programme under which Greece has received €240bn in bailout funds is due to formally end on February 28.

The German chancellor, Angela Merkel, was cautious about the prospects of talks and there have been warnings that any process could drag on. “We are waiting for proposals and then we will enter talks,” Merkel said.

Policymakers at the Bank of England giving evidence to MPs were cautious about the damage Greece could still wreak on financial markets. George Osborne warned after his meeting with Varoufakis on Monday that “the standoff between Greece and the eurozone is the greatest risk to the global economy”.

Martin Taylor, the former boss of Barclays who sits on the Bank of England’s financial policy committee, said the debt level “looks to me to be unsustainable”.

“If creditor nations really do believe they are going to get their money back from Greece then we are in an even worse situation than I thought,” Taylor told the MPs on the Treasury select committee.

Any deal with Greece would not provide a long-term solution to the problems in the eurozone. “It will solve this week’s,” Taylor said. An exit from the eurozone by Greece would have “pretty much uncontrollable results” without co-ordinated action by policymakers, he added. He said, though, that he expected Germany to find a solution to the problem.

Donald Kohn, a former official at the US Federal Reserve who also sits on the Bank of England committee, said he detected a “little bit of give” in the situation and expected a deal to be achieved.

Varoufakis has said he wants to put his proposals to eurozone finance ministers next week. He started out trying to win support for his ideas in meetings with bond investors in London on Monday.