Greece's Euro Exit Seems Inevitable - page 5
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Is Greece About To "Lose" Its Gold Again?
When it comes to the topic of Greece, most pundits focus on two items: i) when will Greece finally run out of confiscatedcash, and ii) will Greece fold to the Troika (and agree to another bailout(s) with even more austerity) or to Russia (and agree to the passage of the Russian Turkish Stream pipeline, potentially exiting NATO and becoming the most important European satellite of the USSR 2.0) once that moment arrives.
And yet what everyone appears to be forgetting is a nuanced clause buried deep in the term sheet of the second Greek bailout: a bailout whose terms will be ultimately reneged upon if and when Greece defaults on its debt to the Troika (either in or out of the Eurozone). Recall that as per our report from February 2012, in addition to losing its sovereignty years ago, Greece also lost something far more important. It's gold:
To wit:The "new deal"referred to is the SecondGreek Bailout, which either will be extended and lead to a third (and fourth, and fifth bailout, each with every more draconian terms until finally Greece does default), or will collapse at which point the Troika will indeed have the right to seize the Greek gold reserves.
What makes this case particularly curious, however, is that it won't be the first time Greece will have "lost" its gold. In The Tower of Basel, citing the BIS archive from Febriary 9, 1931, Adam LeBor writes:And all Greece would need to do to get these copious and generous "benefits"would be to hand over its gold to the Bank of International Settlements. Of course, it would have to find itfirst...
But most importantly, and what ties everything together is that otherhistoric event which took place in 1931.
For those who may not be gold history buffs, this is what happened: in September of that year the Bank of England decided to formally (and for the final time) abandon the gold standard. And, as the chart below first posted on Zero Hedge many years ago, that decision, coupled with the great depression and the loss of confidence in the pound, ultimately ended the reserve status of the British currency, ushering the reserve currency status of the US Dollar.
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Tsipras willing to suspend minimum wage demands, says Bild
Bild alleging/suggesting that changes are afoot
BBG reporting
Elsewhere German fin ministry spokesman Jaeger says Germany's aim is to keep Greece in the euro
Greece Just Clipped Varoufakis’s Wings
Greece reshuffled its bailout-negotiating team, reining in Finance Minister Yanis Varoufakis, after three months of talks with creditors failed to unlock aid and a meeting with his euro-area counterparts ended in acrimony.
The coordination of the day-to-day efforts to strike a deal with creditors was handed to Deputy Foreign Minister Euclid Tsakalotos, a Greek government official said in an e-mail to reporters Monday. Varoufakis will supervise the political negotiations with euro-area member states and the International Monetary Fund. No change was made to Greece’s representation in euro-area finance ministers’ meetings, which Varoufakis attends.
A Eurogroup meeting in Riga, Latvia on Friday descended into name-calling as the currency bloc’s finance ministers hurled abuse at their Greek colleague, accusing him of being a time-waster, a gambler and an amateur. Still, the 54-year-old academic-turned-politician in the government of Prime Minister Alexis Tsipras remains popular at home, with 55 percent of respondents in an Alco survey published in Proto Thema newspaper Sunday expressing a positive view about him.
“This move squares the circle, because it doesn’t look like Tsipras is surrendering by firing Varoufakis, but it to some extent has the same result,” said Michael Michaelides, a strategist at Royal Bank of Scotland Group Plc in London. “It doesn’t change the issues, but given the interpersonal nature of the Eurogroup, and since the finance ministers still remain in charge, this is significant.”
Conciliatory Move
Greek shares rallied after the announcement, with the benchmark Athens Stock Exchange closing the day up 4.4 percent. Bonds rose, with the yield on 3-year notes falling 340 basis points to 22.91 percent.
The action was seen as a conciliatory move by the Tsipras government, according to two officials representing Greece’s creditors. One of them said it may be too late and expressed doubts over whether it can work, given the governing party’s stance on the bailout accord.
The change comes as Greece struggles to amass cash to pay its pensioners and employees this week. Europe’s most-indebted state is counting on deposits of local governments, cities and other funds to meet end-of-month payments of over 1.5 billion euros ($1.62 billion) after euro-area finance ministers on Friday said they won’t disburse more aid until bailout terms are met. State coffers will be further strained on May 6, when Greece needs to find 200 million euros for an IMF payment.
Tsipras’s anti-austerity coalition has sought to get funds released since striking a deal to extend its bailout program in February. The government has repeatedly expressed confidence a deal was imminent, only to be rebuffed by euro-area officials seeking concrete steps. Last week was no different: days after Varoufakis said views were converging, his counterparts across the region hit him with a volley of criticism.
Elusive Agreement
“The government negotiation has wasted much precious time, and lost far too many of Greece’s friends abroad,” George Pagoulatos, a professor of European politics and economy at the Athens University of Economics and Business, said. “An urgent reshuffle was needed, to streamline the negotiation and put forward a team that can enjoy greater credibility in the eyes of the partners,” Pagoulatos said in an e-mail, adding that the announced reshuffle was in a positive direction.
The Greek government supports Varoufakis in the face of international and targeted attacks, spokesman Gabriel Sakellaridis said in a statement. The new team, which he will oversee, will hold its first meeting on Monday evening.
Under the reshuffle, George Chouliarakis, Greece’s representative at the Euro Working Group of finance ministry officials, will be responsible for the so-called Brussels Group meetings between Greek technocrats and representatives of creditor institutions.
Nikos Theoharakis, an associate of Varoufakis at the finance ministry who had been leading technical negotiations so far, will now focus on drafting a growth plan for the Greek economy, the government official who announced the changes said.
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Tsipras Says Greek People May Have to Rule on Final Deal
Prime Minister Alexis Tsipras said Greek voters could be asked to decide on whether to approve an agreement with creditors that may not be in line with his campaign pledge to end austerity.
In a late-night interview on Star TV on Monday, Tsipras said his mandate is to negotiate an accord with euro-area member states and the International Monetary Fund “that won’t repeat the vicious circle of austerity, misery and pillage; a solution with prospects and within the European framework.” If the deal “exceeds that mandate,” then “Greek people will have to decide, obviously not through elections,” he said when asked about the possibility of a snap poll or a referendum.
The 40-year-old leader of Greece’s anti-austerity coalition said he’s confident things won’t reach that point, pointing out that Greece’s place in the euro-area is a “deeply existential issue for Europe, with geopolitical implications.” His comments come after months of talks made little progress in breaking the deadlock between Greece and its institutional creditors, raising the specter of a debt default and the country’s possible exit from the euro.
In a wide-ranging interview that lasted well over 2 ½ hours, the premier lashed out at Eurogroup President Jeroen Dijsselbloem and the European Central Bank, accusing them of treating Greece unfairly and breaking promises.
While showing his willingness to compromise with euro-area partners, he pointed to steps taken by European institutions that he said had worsened the situation in Greece. The region’s most-indebted nation is struggling to crawl out of a more than five-year-old debt crisis that shrank its economy by a quarter and put more than a million Greeks out of work.
ECB Criticized
“On February 18, the ECB took a decision which was politically and ethically unorthodox,” Tsipras said. “It was a decision to put a ceiling of 9 billion euros on the amount that Greece’s systemic banks can hold in t-bills, while the normal ceiling is 15 billion.”
According to Tsipras, this decision meant that Greek lenders lost their ability to refinance an additional 6 billion euros in short-term government debt.
He said Dijsselbloem had offered reassurances that as soon as the country extended its bailout agreement beyond February -- which it did -- this ceiling would be eliminated. Finance Minister Varoufakis received similar promises from his colleagues in the Eurogroup, which Dijsselbloem chairs, Tsipras said. Those pledges were then not honored, he said.
“Our mistake was that we left these at oral promises and didn’t ask for a written commitment,” he said.
Merkel’s Position
The late-night interview came as Greece struggles to amass cash to pay pensions and state employees’ wages by month-end. The country is counting on deposits of reluctant local governments, cities and other funds to meet its obligations to retirees and civil servants this week, after euro-area finance ministers on Friday said they won’t disburse more aid until bailout terms are met.
Depleting state coffers will be further strained on May 6, when Greece needs to find 200 million euros for a payment due to the IMF.
The premier said he’s confident German Chancellor Angela Merkel wants to find a solution out of the logjam, saying a default by the country would mark a failure for Europe.
“A Greek default and a rupture would be a failure for Europe, for Merkel and for Greece itself,” Tsipras said. “The German Chancellor is willing to find a solution for Greece.”
Greece’s bailout negotiating team met in Athens late Monday to prepare ground for a piece of legislation based on proposals discussed with its creditors aimed at unlocking bailout funds.
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ECB's Coeure Says ECB Not Working On Grexit Scenario: Report
The European Central Bank is not preparing for an exit of Greece from the euro area, but aiming to strengthen the bonds with the new government, ECB Executive Board member Benoit Coeure said.
In the transcript on an interview to the French Magazine Alternatives Economiques, published on the ECB website on Tuesday, Coeure said, "The exit of Greece is not a scenario we are working on."
He also said that all the efforts being made at the moment were aimed at strengthening the relationship with Greece, given the new priorities of the government, in a context that remains that of the euro area and which involves rights but also the duty to respect common rules.
Quizzed on the effects of the quantitative easing, Coeure said the massive stimulus helped to boost trust in the ECB's monetary policy transmission mechanism. The QE also helped to lower funding costs for companies and households, rebalance portfolios and influence the exchange rate, though it is not a policy target in itself.
"The impact of the QE materializes when the recovery is strengthening," the policymaker said.
"If we add the price of oil, we have a conjunction of favorable factors for recovery and investment. So in the present state of things there is no reason to worry about the recovery of the euro area in 2015 and 2016," he said, adding that the said factors were short-term in nature, while a longer term concern was the ability to recover the growth potential of the euro area.
Coeure also said that QE certainly reduced the risk of contagion in the Eurozone, but the present context was very different from that of 2012. For countries like Portugal, Spain and Ireland, the focus was no longer an exit from the euro area, but to capitalize on economic recovery to quickly bring down unemployment and return balance to the economy.
He also said that the ECB creates favorable conditions for long-term investment and it is then for governments and European institutions to take advantage of such conditions.
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That is probably the bigest lie I have read about Grexit since the whole mess started
Greek crisis: talk about a deal on Sunday
Bloomberg is reporting that efforts are intensifying towards reaching a deal on Sunday, after Greek Prime Minister Alexis Tsipras has become more involved in the talks.
This doesn’t help the euro so far: EUR/USD is weighed down by some better than expected US figures, but in general, remains well above the critical 1.1050 line it broke yesterday. Update: EUR/USD is feeling a big better and rising to 1.1140. This could be related to this report.
The never ending deadlines to resolve the Greek crisis have been exhausting many market participants. The latest one was May 11th. If a deal is reached on Sunday, May 3rd, that would be 8 days ahead of schedule. Usually deals are made just after the last minute.
Outspoken Greek finance minister Yanis Varoufakis was sidelined recently. Varoufakis and his colleagues didn’t get along together to say the least.
Nevertheless, it is still to be seen if the reports about advance in talks, which Varoufakis himself described as “better than the media reports” mean a big compromise by Greece.
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Greek Default for Dummies: Your Questions Answered on Creditors
Greece has to come up with about 4 billion euros ($4.5 billion) by the end of May for debt payments. Then there’s the 1.5 billion-euro monthly tab for salaries and pensions.
As Prime Minister Alexis Tsipras’s government in Athens haggles over the details of its reforms and leans on its banks to keep buying Treasury bills, the question inevitably looms: what happens if the cash runs out?
Not all creditors are created equal. For example, the International Monetary Fund is more equal than others, first in the repayment queue.
Here are some of the questions you may have, starting right at the very beginning:
Q: What is a default?
A: Investopedia.com defines default as “the failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment.”
Q: How much debt does Greece have?
A: The Greek government has about 313 billion euros of debt outstanding, most due after 2021. Add companies and banks and the total is closer to half a trillion.
Given that Greek banks are likely to refinance most of the maturing Treasury bills without protest -- with pension funds and local governments making up the shortfall -- the important near-term deadlines are May 6 and May 12, when the IMF is due to receive almost 1 billion euros in total.
The real crunch comes midyear, when almost 7 billion euros of bonds held by the European Central Bank mature in July and August.
Q: What happens if the IMF isn’t paid?
A: A missed payment date starts the clock ticking.
Two weeks after the initial due date and a cable from Washington urging immediate payment, the fund sends another cable stressing the “seriousness of the failure to meet obligations” and again urges prompt settlement. Two weeks after that, the managing director informs the Executive Board that an obligation is overdue.
For Greece, that’s when the serious consequences kick in. These are known as cross-default and cross-acceleration.
Q: What are cross-default and cross-acceleration?
A: Failure to pay the IMF would entitle some of Greece’s other creditors, including the European bailout fund, to declare a default. They would then have the option to demand immediate repayment of all their loans, a process known as acceleration.
Other lenders could then follow suit. While calling a default preserves creditors’ claims, acceleration -- the bit that hurts -- isn’t automatic. Each creditor decides on its own.
To varying degrees the debt is linked in a web of cross-default and cross-acceleration clauses that make it safe to assume that one default and acceleration would trigger demands for repayment on most, if not all, of the rest.
Greek debt features a variety of structures, with different terms and conditions and governed principally by Greek and English law. The obligations include bonds whose holders voted not to take part in a 2012 restructuring; notes issued in that restructuring; bonds held by the ECB; a series of loans from Europe’s bailout fund, including one used to sweeten the restructuring pill; notes issued last year; the 2010 Greek Loan Facility; and the IMF loans.
Q: What about credit-default swaps?
A: The determinations committee of the International Swaps & Derivatives Association, the trade association that administers derivative contracts, must first receive a request for a ruling on what should happen to CDS contracts. It then makes a binding decision on whether a “credit event” has occurred, which may trigger the contracts.
There are now 622 contracts open, covering a net $592 million, according to Depository Trust & Clearing Corp., which runs a data warehouse.
In 2012, the contracts paid out after the country’s debt restructuring, which was the biggest ever.
Q: What would default do to Greek banks?
A: That depends on the attitude of the ECB and on the default itself.
With lenders losing deposits, only a drip-feed of Emergency Liquidity Assistance supplied by the Bank of Greece against deteriorating collateral is keeping them afloat.
While ECB President Mario Draghi indicated last week that ELA would continue as long as the lenders are solvent and have adequate collateral, bank solvency, especially of lenders using ELA, is very much a judgement call, says Gabriel Sterne, head of global macro research at Oxford Economics in London.
Failure to repay the ECB in July and August would probably result in the suspension of ELA, according to Chris Attfield, a strategist at HSBC Holdings Plc in London.
Any interruption in ELA would almost certainly trigger a fully fledged bank run, forcing the imposition of capital controls.
If the banks themselves are victims of the default after, say, a failed Treasury bill auction, then their insolvency would probably ensue and ELA would end.
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EU Preview: Europe to Choose Grexit, Brexit or None of These
In the general elections in Britain, expected to be very tight, the Conservative party is projected to get some 280 lawmakers, while Labour is likely to win up to 270 seats in the next parliament, according to the latest polls.
While the Tories have lost a lot of supporters to the UK Independence Party (UKIP), many Labour votes went to the Scottish National Party (SNP), therefore, this year's May general election in the UK is seen as the most uncertain in post-war history. The era of a strong two party political establishment may be now a matter of historical records.
The latest forecasts indicate both the Liberal Democrats and the SNP could hold the balance of power after the elections. The Scottish Nationalists, who currently have only six seats in Westminster, could expand their flock to as many as 48 mandates in the next legislative, while the Liberals are expected to retain 27 seats.
"The tight race between the Tories and Labour suggests another hung parliament, where no political party wins 326 seats or more out of the total 650 to form a majority, single-party, government. Given the pre-election clashes among the major parties, or Labour's explicit promise not to form any formal or informal deal with SNP after the election, only intensify the prospect of thorny political maneuvering to come," WBP Online correspondent Vladimir Harman from London writes.
Both major parties have promised rather profound policy changes if they win and form the next government. The Conservatives pledged to call a referendum on Britain's EU membership, while Labour -- and the SNP -- promised to end austerity cuts.
Brexit referendum fear impacts markets
"These two possible outcomes are the biggest worries among the investors and financial markets, and that is why markets seem to prefer a bit of political turmoil to a strong single-party government, and the sweeping policy changes thereafter," Harman says.
"The outcome that is the most worrying to markets is outright victory by either major party," David Bloom, head of Foreign Exchange Strategy at HSBC, said in a survey for Financial Times. "On the Labour side we worry about big fiscal issues despite them trying to calm us down. On the Conservative side, we worry about the in-out vote on the [EU] referendum, which would be damaging to sterling. I think a minority government that can't make sweeping changes is the best possible outcome in the UK election, for sterling at least," Bloom argued.
"A lot of international investments have come through the UK on the basis of this being the best place to get entry to European products and European markets. I think if we saw that referendum risk rise then I think international investors will be very concerned about the outcome," Ian Harnett, managing director at Absolute Strategy Research argued, warning that referendum uncertainty will undoubtedly impact on UK equities and hit sterling very badly.
BNP Paribas research team agree with such an assessment in their FX Strategy report released on Friday: Prime Minister "Cameron’s focus on the EU referendum likely represents a renewed downside risk to GBP that threatens the recent rally if the conservatives gain the most seats. In contrast, a Labour /SNP coalition appears potentially unstable so ruling it out would be a GBP positive if Labour emerges ahead. In summary, we think the recent GBP rally is vulnerable until after the formation of a new government."
The impact of a possible UK exit from the European Union would be harder for Britain than for Germany or the rest of Europe, according to Bertelsmann Stiftung, a German think tank, and it could see as much as 14% cut off the country's GDP.
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"Completely Absurd" To Think Greece Won't Default In May: Official
Greece is locked in negotiations with international creditors as the country races against the clock to avert a default as early as this month.
While talks have picked up pace in recent days, the two sides are still trying to bridge differences on stalled reforms. It isn’t yet clear that there will be enough progress to clinch a deal in time for the planned May 11 meeting of euro-area finance ministers, some officials warned.
“They’re working hard now and that’s what we’ve gained,” Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem told reporters in the Hague. “But in the end we only look at the results and we’re not that far yet.”
Greek Prime Minister Alexis Tsipras told his cabinet on Thursday he’s confident of closing a deal, even as his government sent conflicting signals on its willingness to agree on reforms required under the 240 billion-euro ($268 billion) bailout. Faced with debt payments totaling about 1 billion euros to the International Monetary Fund on May 6 and May 12, Greece hopes there will be enough progress in the talks by next week to allow the European Central Bank to restore liquidity access for the country’s cash-strapped banks.
Optimism that a deal to unlock financial aid for Greece is near after months of talks put the country’s assets among the region’s best performers in April. The Athens Stock Exchange Index of shares jumped the most by the end of April since September 2012 from a two-year low on April 21. It ended up 6.1 percent in April, the biggest rally in western Europe. Bonds returned 13 percent, as securities across the region fell.
Optimistic Assumptions
Greece and its creditors stepped up efforts to break the impasse with a target to reach a deal by Sunday, three people with knowledge of the talks said earlier this week.
“One thing from the history of the euro crisis that we know is that all of these deadlines can shift, but if there is an actual deadline they will make a decision beforehand,” Christian Schulz, an economist at Berenberg Bank, said in a Bloomberg TV interview on Friday. “They’re still miles apart on pretty much everything.”
Dijsselbloem said it was too early to say whether talks with Greece had reached a turning point. While there has been progress in terms of the process after Tsipras reshuffled the negotiating team, pushing aside Finance Minister Yanis Varoufakis, there is still a long way to go on the substance, a person familiar with the matter said, asking not to be named because the talks are private.
The official said that the Greek government’s economic assumptions are very optimistic, making it difficult to agree on the extent of fiscal adjustment measures the country must adopt to meet goals under its bailout.
The Greek government’s assumptions for deficit, debt and revenue are based on a growth forecast of 1.4% for 2015. The Commission is expected to lower its current forecast of 2.5% to well below the government’s estimate when it issues its spring forecasts on May 5, the official said.
Stumbling Blocks
An agreement with creditors could still meet opposition within Tsipras’s government. Varoufakis said on Thursday that Greece wouldn’t discuss pension cuts or a sales-tax increase as part of the current talks, although he indicated that any pension reform could be part of a broader agreement in June.
In a sign that the government may be ready to ease its stance against certain reforms, it plans to invite investors to buy a stake in the country’s main port of Piraeus on May 6, the same day the ECB may discuss the collateral it accepts from Greek banks in return for emergency funding. Greece will proceed this year with the sale or leasing of stakes in several strategic assets, including Piraeus Port Authority SA and 14 regional airports, according to Greek officials with direct knowledge of the matter.
“These steps appear positive, but the real stumbling blocks such as labor market and pension reforms demanded by the creditors still need to be surmounted,” UBS analysts Ricardo Garcia-Schildknecht and Thomas Wacker, who see Greek default risk probability at 50-60 percent, wrote in a note to clients. “We therefore have difficulty seeing how the Eurogroup can unlock the bailout funding under these circumstances.”
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