Greece – Just waiting for the fat lady to sing!
Of late there has been so much written, and so much speculation in the media on this topic. Frankly when I wrote my article in the blog dated April 5th “does Merkel have the balls to risk a contagion”, deep down i thought that when push comes to a shove that Germany would back down.
Recent comments from Merkel’s “pit-bull”, Wolfgang Schaeuble (German finance minister), would indicate that the Germans are prepared for a Grexit. Without doubt on may 1st and may 12th the Greek government has payments due to the imf totaling €200 million and €763 million respectively and i just cannot see these payments being made given the current set of circumstances.
We therefore, will have a default on our hands.
What does this mean for Greece and the Eurozone?
For greece, it would be devastating. Already i have read about Greek importers having credit lines removed from suppliers who originate outside of Greece. All imports have to be paid in full prior to shipment.
Earlier last week there was a leaked IMF document that showed that calculations on the tax and income effect from changes requested by the Trioka were incorrectly calculated. The relationship between changes in direct and indirect tax when added to a reduction in government spending and the effect that this would have on GDP were not calculated accurately. These fiscal multipliers that form the benchmark of a governments annual accounts were screwed and no matter what Greece was able to do it would never be enough.
The alleged long-term solution was so drastic it set Greece back instead of allowing a gradual move forward. A situation that would take effectively decades to fix was fixed at a stroke of a pen overnight…. Or not as the case is.
I read only a few days ago in passing that even if Greece had a GDP rate of 10% per annum for the next 5 years they would still be no better off and could not effectively manage.
What is the point of a bailout for a country that simply cannot pay at any price?
Greek debt totals about €323 billion. Of this total about €15 billion is held by Greek banks and a further €246 billion by the ECB and other Eurozone banks.
Anyone who says that a Greek default would not really affect the Eurozone and in fact the Eurozone would be stronger without Greece, needs to grab the concept of market uncertainty and contagion.
For the Eurozone, the financial numbers will create market uncertainty and whilst they would be considered somewhat nominal, there would be a negative effect.
The bigger risk however is contagion. If a Grexit occurs, every far right party and every anti-Europe, anti-Brussels party in the Eurozone would be on red alert. If Greece can return to the drachma we will go back to whatever….
This is the contagion risk that could break up the Eurozone, as we know it today. It could happen. Very few people in the Eurozone actually voted for the single-currency. There could be fireworks ahead.
So what happens next, if Greece defaults? By the way, there is no such thing as an orderly default. You can be prepared but you will not know when it will happen. Here are some possible scenarios:
1. The Athens government in Greece announces capital controls.
2. Greece issues basically iou’s to pay for essential services.
3. The drachma is re-introduced and operates alongside the eur until the eur is totally withdrawn.
4. There is huge confusion over the potential value of the drachma versus the EUR and people are reluctant to hold the new currency. This creates a potential run on the banks probably across parts of Europe, in particular the periphery. In Greece capital controls basically freeze accounts and only drachmas can be withdrawn.
5. Possible capital controls in other periphery countries banks as rumours of more potential exits of the Eurozone hit the newswires and the populations around the Eurozone see how Greece coped, or didn’t with the transfer.
6. Emergency ECB measures on movement of monies throughout the Eurozone.
7. Emergency ECB measures for Eurozone state banks to hold monies overnight.
8. ECB bank guarantees bank deposits throughout the Eurozone.
9. The EUR/USD is now sub-parity towards 0.9600.
10. Huge uncertainty in Greece as the Greek people protest riots in Athens.
11. The blame game between Athens and the Eurogroup reaches new levels over who didn't trust whom, causing political uncertainty in other Eurozone countries. Stability is threatened.
12. We have a contagion effect.
If there is an eleventh hour solution it will probably be yet another fudge by Merkel to buy time so that the Eurozone central banks can offload a potential future Greek default situation into the ECB.
Personally, i think that the Greek government knows what they are going to do and are scheduling an emergency timetable to minimalize all the risks associated with a default.
I wrote a few weeks ago about trust within the relationships in the Eurozone, not just the trust issues that are so apparent between Greece and Germany but within the other relationships that exist. The Eurozone is the name given to the countries within the European union that adopt the single currency. However the entire area of Europe with all partners is called the European union, this encompasses members who do not use the single currency such as the UK, Sweden, Norway and Denmark. The union stands out…”union my a**e”, most issues inside Europe are so far away from a union status it re-defines the word.
I am amazed at the market complacency surrounding this and the EUR/USD trading above 1.0800, i just cannot fathom.
I cannot see a way out other than a Grexit and the on-going contagion games will begin. Whilst you cannot attribute blame to Greece for this mess the Eurogroup and Trioka are equally at fault with setting financial goals, objectives and measures that the Greek economy could not support in anyway shape or form.
Now we have the “pit-bull” (Schaeuble) acting out a modern Pontius Pilate routine in front of the world’s media. It is a bloody disgrace how Greece got here, but my god what a union!!!
I await the Reuters feed soon with the news.
Scott Pickering
April 21st 2015
Of late there has been so much written, and so much speculation in the media on this topic. Frankly when I wrote my article in the blog dated April 5th “does Merkel have the balls to risk a contagion”, deep down i thought that when push comes to a shove that Germany would back down.
Recent comments from Merkel’s “pit-bull”, Wolfgang Schaeuble (German finance minister), would indicate that the Germans are prepared for a Grexit. Without doubt on may 1st and may 12th the Greek government has payments due to the imf totaling €200 million and €763 million respectively and i just cannot see these payments being made given the current set of circumstances.
We therefore, will have a default on our hands.
What does this mean for Greece and the Eurozone?
For greece, it would be devastating. Already i have read about Greek importers having credit lines removed from suppliers who originate outside of Greece. All imports have to be paid in full prior to shipment.
Earlier last week there was a leaked IMF document that showed that calculations on the tax and income effect from changes requested by the Trioka were incorrectly calculated. The relationship between changes in direct and indirect tax when added to a reduction in government spending and the effect that this would have on GDP were not calculated accurately. These fiscal multipliers that form the benchmark of a governments annual accounts were screwed and no matter what Greece was able to do it would never be enough.
The alleged long-term solution was so drastic it set Greece back instead of allowing a gradual move forward. A situation that would take effectively decades to fix was fixed at a stroke of a pen overnight…. Or not as the case is.
I read only a few days ago in passing that even if Greece had a GDP rate of 10% per annum for the next 5 years they would still be no better off and could not effectively manage.
What is the point of a bailout for a country that simply cannot pay at any price?
Greek debt totals about €323 billion. Of this total about €15 billion is held by Greek banks and a further €246 billion by the ECB and other Eurozone banks.
Anyone who says that a Greek default would not really affect the Eurozone and in fact the Eurozone would be stronger without Greece, needs to grab the concept of market uncertainty and contagion.
For the Eurozone, the financial numbers will create market uncertainty and whilst they would be considered somewhat nominal, there would be a negative effect.
The bigger risk however is contagion. If a Grexit occurs, every far right party and every anti-Europe, anti-Brussels party in the Eurozone would be on red alert. If Greece can return to the drachma we will go back to whatever….
This is the contagion risk that could break up the Eurozone, as we know it today. It could happen. Very few people in the Eurozone actually voted for the single-currency. There could be fireworks ahead.
So what happens next, if Greece defaults? By the way, there is no such thing as an orderly default. You can be prepared but you will not know when it will happen. Here are some possible scenarios:
1. The Athens government in Greece announces capital controls.
2. Greece issues basically iou’s to pay for essential services.
3. The drachma is re-introduced and operates alongside the eur until the eur is totally withdrawn.
4. There is huge confusion over the potential value of the drachma versus the EUR and people are reluctant to hold the new currency. This creates a potential run on the banks probably across parts of Europe, in particular the periphery. In Greece capital controls basically freeze accounts and only drachmas can be withdrawn.
5. Possible capital controls in other periphery countries banks as rumours of more potential exits of the Eurozone hit the newswires and the populations around the Eurozone see how Greece coped, or didn’t with the transfer.
6. Emergency ECB measures on movement of monies throughout the Eurozone.
7. Emergency ECB measures for Eurozone state banks to hold monies overnight.
8. ECB bank guarantees bank deposits throughout the Eurozone.
9. The EUR/USD is now sub-parity towards 0.9600.
10. Huge uncertainty in Greece as the Greek people protest riots in Athens.
11. The blame game between Athens and the Eurogroup reaches new levels over who didn't trust whom, causing political uncertainty in other Eurozone countries. Stability is threatened.
12. We have a contagion effect.
If there is an eleventh hour solution it will probably be yet another fudge by Merkel to buy time so that the Eurozone central banks can offload a potential future Greek default situation into the ECB.
Personally, i think that the Greek government knows what they are going to do and are scheduling an emergency timetable to minimalize all the risks associated with a default.
I wrote a few weeks ago about trust within the relationships in the Eurozone, not just the trust issues that are so apparent between Greece and Germany but within the other relationships that exist. The Eurozone is the name given to the countries within the European union that adopt the single currency. However the entire area of Europe with all partners is called the European union, this encompasses members who do not use the single currency such as the UK, Sweden, Norway and Denmark. The union stands out…”union my a**e”, most issues inside Europe are so far away from a union status it re-defines the word.
I am amazed at the market complacency surrounding this and the EUR/USD trading above 1.0800, i just cannot fathom.
I cannot see a way out other than a Grexit and the on-going contagion games will begin. Whilst you cannot attribute blame to Greece for this mess the Eurogroup and Trioka are equally at fault with setting financial goals, objectives and measures that the Greek economy could not support in anyway shape or form.
Now we have the “pit-bull” (Schaeuble) acting out a modern Pontius Pilate routine in front of the world’s media. It is a bloody disgrace how Greece got here, but my god what a union!!!
I await the Reuters feed soon with the news.
Scott Pickering
April 21st 2015