Monday, May 14, 2012

Greece is focus - is Greece functionally broke as we speak - state coffers at 1.5 billion euros in toto and a 430 million payment due on May 15th ( how might they make payments for salaries / pensions / ocial and government services between mid- May through the end of June one might wonder ) , shifting political dynamic / shifting spin / misdirections , rumors and speculation as the parties contemplate a possible short term Coalition of Pasok , Democratic Left ( note Democratic Left denies such an arrangement is in the cards ) and New Democracy to deal with the messy details coming up for resolution by the end of June for Bailout 2. Threats , coaxing continue as the tally as to what a greek exit would mean are started .

http://www.zerohedge.com/news/greece-virtually-out-cash-one-day-critical-bond-maturity


Greece Virtually Out Of Cash One Day Before Critical Bond Maturity

Tyler Durden's picture
Submitted by Tyler Durden on 05/14/2012 08:42 -0400



Curious why the topic of tomorrow's €430 million non-Greek law bond maturity payment (which we first pointed out as a D-Day type of cash outflow for the Greek people) is particularly touchy for Greece? Simple: if Greece makes the payment it will see its already in the red cash balance drop by 30%. Which would mean the country will likely not pass go and go straight into looting mode once the people realize that some evil, evil hedge fund hold outs (who are doing precisely what they are contractually entitled to, and what we saidback in January would be the event that breaks the bank, i.e., holding out) have been paid in full despite the Greek restructuring, while there is no money to pay anything else... Because as Bloomberg points out, "the level of funds in Greece’s state coffers has fallen below 1.5 billion euros ($1.9 billion), Imerisia reported, citing “reliable information.” If the state doesn’t receive predicted revenue for the rest of this month, it will find it difficult to pay for social services, pensions and public-sector wages, the newspaper said." Translation: when the money runs out, it's game over. But it will also be game over if and when Greece either does not want to or does not have the cash to pay tomorrow.Things are moving fast now.




http://www.athensnews.gr/portal/8/55504


10.25am He said it enough times over the weekend and he's saying it again: this morning, Fotis Kouvelis (below), the moderate Democratic Left leader, said that reaffirmed this morning that he would not take part in a coalition government without the more Radical Left Coalition (Syriza), hours ahead of a final round of talks. Kouvelis repeated that he wanted an "ecumenical" (national unity) governent, telling Antenna TV: 
"A government that does not ensure the participation of the second party will not have the necessary popular and parliamentary support." 




http://www.guardian.co.uk/business/2012/may/14/eurozone-crisis-greek-exit-markets


12.33pm: Breaking news out of Athens from our correspondent Helena Smith:

Greek media are reporting that politicians in Pasok, New Democracy and the small Democrat Left – the three parties which in effect have agreed on the need to form a government with the aim of keeping Greece in the euro zone – are now considering establishing a short-lived coalition to steer the country through the next few months. 

Helena continues:
Under this latest scenario, a government would be formed with the aim of running affairs for the next two to three months only. In that time it would deal with the "pressing matters" that would ensure Greece kept on receiving rescue loans from creditors. As reported earlier, Athens is due to receive a bumper €30bn injection of cash in June. But the quid pro quo is that the debt-stricken country also announces €11.5bn in further cuts to reign in public finances.

It should be recalled that the Democratic Left has demanded that Greece steadily "de-link" itself from the controversial conditions it has signed up to in its latest €130bn loan agreement with international creditors. How this will happen remains to be seen.

Helena adds that Wolfgang Schäuble's comments this morning (see 11.03am) that Greece needs help getting 'back to its feet' have raised hopes of a change in attitude by Berlin.

Regarding a coalition governmentt, there were similar rumours on Thursday evening when Pasok leader Evangelos Venizelos called for a unity government. Then, there was some support from the Democratic Left, but hopes of a deal still floundered.
Pasok, New Democracy and Democratic Left do have enough seats for a small majority in the Athens parliament. But as so many voters voted for parties who reject the terms of Greece's financial package, such a coalition could be very unpopular.
12.21pm: Helena Smith has got hold of this morning's statement from Syriza, in which leader Alexis Tsipras indicated he would be prepared to take part in new cross-party talks as long as Golden Dawn were excluded (as mentioned at 10.22am). Tsipras also attacked the "selective discussions" which he claims have been taking place in Athens in recent days.
Helena writes:
Syriza's statement, which spoke of Tsipras's "willingness" to participate in talks attended by all the party leaders - with the exception of the neo fascist Chrysi Avgi-- also demanded that the minutes of Sunday's meeting between the country's leading party heads and president Papoulias be "immediately published so the Greek people can be informed and the mass media stops the rumour mill regarding the positions and intentions of the parties."

"The presidency has a self-evident obligation" to release the minutes, it said.
12.01pm: The European Commission has followed Finland in firing a warning shot towards Athens today, warning that Greece cannot remain in the eurozone if it doesn't stick to the terms of its aid deal.
European Commission spokeswoman Pia Ahrenkilde Hansen told today's news briefing in Brussels that:
We wish Greece will remain in the euro and we hope Greece will remain in the euro... but it must respect its commitments.

Another signal that European leaders are "facing the inevitable" with Greece, or an attempt to put pressure on Greek leaders to somehow patch together a deal?

11.48am: The escalating eurozone crisis has prompted another dash into 'safe-haven' government bonds.
This has driven down the yields on sovereign bonds from the UK, Germany, Sweden, the Netherlands, Switzerland, Denmark, Finland, and Luxumberg to record lows.
For Britain, this means that the 10-year gilt is trading at a record low yield of just 1.87% (compared to Spain's 6.2%).



http://www.zerohedge.com/news/jpmorgan-estimates-immediate-losses-greek-exit-could-reach-400-billion


JPMorgan Estimates Immediate Losses From Greek Exit Could Reach 400 Billion

Tyler Durden's picture
Submitted by Tyler Durden on 05/14/2012 02:06 -0400




While our earlier discussion of the implications of Greece's exit from the Euro are critical reading to comprehend the real-time game of chicken occurring in front of our eyes, JPMorgan's somewhat morequantifiable estimates of the costs and contagion, given the results of the Greek election have raised market expectations of an exit of Greece from the Euro, also provide key indicators and flows that should be monitored. Identifying what has gone wrong with Greece's co-called 'adjustment' program, they go on to identify key transmission mechanisms to Spain and Italy, how it could potentially improve (Marshall-Plan-esque) and most critically, given the exponentially growing TARGET2 balances, if and when Germany throws in the towel.


JPMorgan: Greek Contagion
The results of the Greek election have raised market expectations of an exit of Greece from EMU. How exactly could this exit happen and what flows should we monitor?

Market forces could induce a Greek exit. A potential deadlock between the Greek government and the Troika which terminates funding from the EU/IMF, has the potential to create fear and panic and accelerate the capital and deposit flight out of Greece. Once this capital flight accelerates Greece would likely have to ultimately introduce capital controls. With EU funding being cut and the economic situation deteriorating, Greece will likely to start paying at least part of salaries and pensions in promissory notes or Greek bonds.


Greek banks have run out of ECB eligible collateral already and can only access Bank of Greece’s ELA, but even with ELA, the collateral, typically loans, is not unlimited. They have already borrowed €60bn via  ELA which, assuming 50% haircut corresponds to around €120bn of loan collateral. Outstanding loans are €250bn, so Greek banks have a maximum of €130bn of remaining loan collateral which allows for a maximum of €65bn of additional borrowing from Bank of Greece’s ELA.

This corresponds to around 40% of Greek bank deposits which stood at €170bn as of the end of March. The true maximum amount that Greek banks can borrow via ELA is likely though to be significantly smaller because not all loans are accepted as collateral via ELA. The alternative is for Greek banks to be allowed to issue more government guaranteed paper but the ECB can, with a 2/3rd majority, block a steep and unsustainable increase in Bank of Greece’s ELA. This would effectively cut Bank of Greece off from TARGET2 and force it to eventually issue its own money.


Unfortunately, we need to wait until the end of June for the ECB’s monthly MFI balance sheet data to get an accurate picture of the impact of Greek elections on deposits. Anecdotal evidence from the Greek press and elsewhere suggests that deposit outflows re-accelerated post elections.

It is often stated that Greece’s low primary deficit (projected at 1% or €2bn in 2012) increases the incentive for Greece to walk away from the bailout agreement. This is not true, in our view, given that Greece is still on the hook for the €6.3bn that is needed to clear general government arrears and the extra €23bn that is needed to complete the bank recapitalization plan. And as described above, a deadlock with Troika raises the risk of an accident that leads to Greece’s departure via market forces even if this was not the original intention of the Greek government.

The consequences for Greece would be clearly negative, if not catastrophic following an exit: high inflation, fuel shortages, big reduction in living standards, increase in social tensions or even unrest, political isolation internationally. This is why the chances of a Greek exit should be logically significantly below 50%.

What would the consequences for the rest likely to be?

The main direct losses correspond to the €240bn of Greek debt in official hands (EU/IMF), to €130bn of Eurosystem’s exposure to Greece via TARGET2 and a potential loss of around €25bn for European banks. This is the cross-border claims (i.e. not matched by local liabilities) that European banks (mostly French) have on Greece’s public and non-bank private sector. These immediate losses add up to €400bn. This is a big amount but let's assume that, as several people suggested this week, these immediate/direct losses are manageable. What are the indirect consequences of a Greek exit for the rest?

The wildcard is obviously contagion to Spain or Italy?Could a Greek exit create a capital and deposit flight from Spain and Italy which becomes difficult to contain? It is admittedly true that European policymakers have tried over the past year to convince markets that Greece is a special case and its problems are rather unique. We see little evidence that their efforts have paid off.

The steady selling of Spanish and Italian government bonds by non-domestic investors over the past nine months (€200bn for Italy and €80bn for Spain) suggests that markets see Greece more as a precedent for other peripherals rather than a special case. And it is not only the €800bn of Italian and Spanish government bonds still held by non-domestic investors that are likely at risk. It is also the €500bn of Italian and Spanish bank and corporate bonds and the €300bn of quoted Italian and Spanish shares held by nonresidents. And the numbers balloon if one starts looking beyond portfolio/quoted assets. Of course, the €1.4tr of Italian and €1.6tr of Spanish bank domestic deposits is the elephant in the room which a Greek exit and the introduction of capital controls by Greece has the potential to destabilize. In this respect, it is important to keep a close eye on Chart 1.

What has gone wrong with the Greek adjustment program?

After all, Greece has managed to reduce its primary deficit by 8 percentage points in two years, something that no other country has achieved. And according to Bank of Greece, given announced cuts, unit labour costs are likely to be down by 13% this year vs. the end of 2009, an adjustment that is only comparable to Ireland’s “success” story. From a technocrat’s point of view, this must be impressive performance.

Perhaps the best way to understand what went wrong with the Greek adjustment program is to compare it with Iceland’s program. On Nov 3rd 2011, the IMF issued the verdict on its 3-year adjustment program for Iceland. The IMF’s verdict was that its “program for Iceland was a success” due to 4 factors:

  1. the decision not to make taxpayers liable for bank losses.
  2. the decision not to tighten fiscal policy during the first year of the IMF program.
  3. preservation and even strengthening of Iceland’s welfare state during the crisis.
  4. prudent use of capital controls. The IMF said: “capital controls were necessary and are now seen as useful addition to policy toolkit”.
Although permissible under EU treaties, factor 4 is admittedly not consistent with a monetary union. But none of the remaining 3 factors were present in the Greek program. No debt relief was given to Greece early, the fiscal adjustment was front-loaded rather than back-loaded (a massive 5% deficit reduction was required in the first year only), and not much attention was paid to protecting those at the low end of the income distribution.

How could the situation improve?

The Marshall plan for Greece is probably the best hope.Much has been said about Greece’s Marshall plan over the past months but little has been done. Estimates are close to €20bn or 10% of Greek GDP. Assuming Greece is changing its bureaucrat and deficient administrative/tax/legal structures quickly enough to allow for fast absorption of these funds, a Marshall plan has the potential to at least stop and perhaps reverse the economic decline.

Clearly such a Marshall plan represents a transfer from the core to periphery. These transfers are necessary in a monetary union where the core diverges from the periphery or, more correctly, Germany diverges from all the rest. Charts 2 and 3 show that both TARGET2 imbalances and real GDP levels continue to show a widening gap between Germany and the rest.

Without these transfers the likelihood of repeated crisis in the euro area will remain very high especially if tight financial conditions, uncertainty and lack of private sector investment condemns the periphery to a path of rising unemployment and never ending economic decline. And unfortunately Greece is not alone in facing these persistent headwinds. As we highlighted in F&L April 27th, the drag from tight financial conditions on periphery remains heavily negative.

It is possible that necessary fiscal transfers are not politically feasible or that Germany is eventually far too different from the rest to coexist in a monetary union. In this case the horrific scenario of a break up becomes more likely. We would like to make two observations: 1) it is less painful and makes more economic sense for Germany rather than periphery to leave. See above discussion on consequences of a Greek exit for Greece, 2) the cost of a breakup is rising exponentially over time. Bundesbank TARGET2 balance reached a new high of €644bn in April.

and europe is a mess today , not surprisingly .....


http://www.zerohedge.com/news/overnight-summary-perfect-storm-rising


Overnight Summary: Perfect Storm Rising

Tyler Durden's picture
Submitted by Tyler Durden on 05/14/2012 07:37 -0400




The only good news spin this morning was that the Greek, pardon Spanish contagion, has not reached Italy, after the boot-shaped country sold €5.25 in bonds this morning at rates that did not indicate a meltdown just yet. It sold its three-year benchmark at an average 3.91 percent yield, the highest since January but below market levels of around 4 percent at the time of the auction. It also sold three lines due in 2020, 2022 and 2025 which it has stopped issuing on a regular basis. And this was the good news. The bad news was the not only has the Spanish contagion reached, well, Spain, but that everything else is now coming unglued, as confirmed first and foremost by the US 10 Year which just hit a new 2012 low of 1.777%. Spain also is getting hammered with CDS hitting a record wide of 526 bps overnight, and its 10 Year hitting 6.26% after the country sold 364 and 518-Day Bills at rates much higher rates than on April 17 (2.985% vs 2.623%, and 3.302% vs 3.11%). But the highlight of the day was theBanco de Espana release of the Spanish bank borrowings from the ECB, which to nobody's surprise soared by €36 billion in one month to €263.5 billion, more than doubling in 2012 from the €119 billion at December 31.
That this happened even as the Spanish government is now serially nationalizing banks is probably the nail in the coffin of Spain, and means the market can now sit back and watch as the Greek events unfold one at a time a few thousand kilometers west. Finally, and going back to Greece, nothing has been resolved on the election front where Syriza has pointedly refused to meet with the president at 7:30 pm local time in a last ditch attempt to avoid a second parliamentary election. But probably the one headline that bears the most watching is that Greek government spokesman Kaspsi has said that the Greek government has not taken a decision on its May 15 bonds yet. Well, with just a few hours left in the day, they better decide soon. As a reminder, this is the fulcrum issue identified first by Zero Hedge, that is a non-member of the PSI consortium and has non-Greek law covenants, and whose non-payment will push Greece into full out bankruptcy.
Altogether a perfect storm day in the making, which has sent the EURUSD tumbling, gold red on the year, various "safehaven" bonds to new record low yields, and futures imploding in what is nowcertainly a preparation day for THE NEW QETM, especially since German GDP data released tomorrow now appears set to confirm that even Europe's largest economy has double dipped. With China already commencing a new easing episode, it only means it is just a matter of time before the Fed now joins the rest of the world in a desperate attempt to once again prove Einstein was 100% correct.
And a full recap from Bank of Countrywide Lynch:
Market action: Political uncertainty undercuts confidence
Political uncertainty in Europe is undercutting global investor confidence. In Greece, deadlock is set to continue as legislators are unable to find agreement on a unity government. Meanwhile, the Greek media has started discussing Euro exit scenarios and the threats to the nation's banking sector. Meanwhile, in Germany, Chancellor Angela Merkel suffered a significant political setback; her party was defeated in the nation's most populous state in regional elections. 
In other news, weaker than expected Chinese economic data has spurned action. Clearly, the pace of the slowdown in China is more than policymakers can stomach. The People's Bank of China (PBoC) said that it is cutting the reserve ratio by 50bps, freeing up more cash for the banking system. This is the third such cut in the last six months. Announced over the weekend, the cut will be effective May 18. Because the announcement came immediately after soft economic data, we expect the PBoC to further ease liquidity conditions. 
Stocks down, US and German bonds better bid
Stocks are selling off sharply as investors take risk off the table. The MSCI Asia Pacific Index slid 0.7%. In Europe, major indices are down in excess of 2%. Spain's IBEX is off 2.8%; the CAC 40 is cracking 2.3%; and, the German DAX is sliding 2.1%. At home, equity futures are pointing to a lower open across the major indices. The Dow is set for a triple-digit loss at the open. 
In bondland, there is a major flight to safety trade. US 10-year Treasury note yields are down 6bps to 1.78%. If you think that is low, the benchmark German bund is off 7bps to 1.44%. In the UK, gilts are down 10bps to 1.87%. By contrast, yields across the periphery have blown out, up 23bps in Italy to 5.7% and 28bps in Spain to 6.24% - levels not seen since last November. 
Commodities melt as US dollar rallies
Not surprisingly, as the market prices in a softer growth backdrop commodities are coming under pressure. WTI crude oil is down $2.0 to $94 per barrel. Turn to page C1 of today's Wall Street Journal, "Commodities Rally Hits a Speed Bump." The yellow metal is having a bad day - of $17 to $1563 per ounce. Part of the weakness in gold has to do with the falling value of India's rupee. Recall that India is the world's largest gold consumer. See page C10 of today's WSJ, "Weak Rupee Stings Gold." Industrial metals are down too. Copper is taking a 2.5% hit to its lowest level since January. Finally, the US Dollar is enjoying the risk-off trade, rallying against most major currencies. The DXY Index is up 0.3% and with concerns rising in Europe, the euro-dollar cross is breaking down to 1.29. 


























    Posted by at

    No comments:

    Post a Comment

    Subscribe to: Post Comments (Atom)