http://www.zerohedge.com/news/germany-has-reached-its-limit-greek-aid
Submitted by Tyler Durden on 08/12/2012 10:05 -0400
Samaras…big secret, upping the pace of austerity
Germany Has "Reached Its Limit" On Greek Aid
While Frau Merkel remains beach-bound somewhere, hence the lack of 'Neins' recently, her deputy chancellor Michael Fuchs made it unequivocally clear this morning in a Handelsblatt interview thatGermany had "reached the limit of its capacity" over additional EFSF payments to Greece and reiterated the double-whammy that the ESM should NOT receive a banking license and that the ECB should NOT act as "money printing press in disguise" by extending emergency loans and bypassing EFSF/ESM. A decision about whether Greece should be given the second tranche of its loan will not be made until October, after the Troika finalizes its first review of the second rescue program in September. However, BNP Paribas notes that there have been a couple of developments worth noting over the past week and more are likely in the coming weeks.
BNP Paribas: Greece, Trying To Catch Up
Some encouraging news...
On Sunday 5 August, the Greek government and Troika officials wrapped up the first round of talks during which “great progress” was made, according to IMF officials. The Troika team returns to Athens in early September and the cabinet needs to finalise the details of the EUR 11.5bn of spending cuts for 2013-14 agreed with the Troika, focus on the implementation of EUR 3bn of fiscal measures for this year and discuss an acceleration of privatisation and structural reforms until mid-September.
In the meantime, Greece has gained time by finding a solution to the upcoming EUR 3bn Greek government bond redemption, on 20 August. (These bonds are held by the ECB.) According to Greek officials, Greece will issue extra T-bills this month (note that under the second programme, the plan was Greece to actually decrease the outstanding amount of T-bills this year). An announcement on the amount and details of the issuance is expected on Friday 10 August, but the issuance should enable Greece to meet its funding needs through September.
However, the issue is where the demand for these additional T-bills will come from. In this respect, we see it as no coincidence that, reportedly, the ECB decided to raise the limit on the amount of T-bills the Bank of Greece can accept as collateral from Greek banks by EUR 4bn to EUR 7bn. This will enable Greek banks to receive additional liquidity from the central bank, which can then be used to buy the additional T-bills the government is to issue.
This is clearly an example of monetary financing of the government’s funding needs and is unsustainable. Nonetheless, as a temporary solution, it is a positive development as it will give time to the Troika, to finalise its first review of the programme, and to Greece, to focus on its efforts on catching up with the implementation of its programme to get a positive first review.
...But no reason to get carried away
Although Greek politicians generally seem to recognise that this is the last chance for the country to prove itself suitable to continue to receive funding from the EU/IMF, decision making has not been easy under the three-party coalition government. The Greek prime minister’s view that Greece has to deliver first before it can ask for a renegotiation of the programme is certainly the right attitude. But, Greece has already faced some difficulties in meeting its commitments. First, it took the cabinet longer than expected to agree to spending cuts for 2013-14 before it met the Troika, which delayed the Troika team’s departure from Athens. Second, disagreements among the three party leaders have made it hard to finalise details of EUR 11.5bn of spending cuts this week. According to the Greek finance minister, around EUR 4bn of measures out of EUR 11.5bn still needed to be detailed. One of the measures to fill this gap, the revival of a labour reserve scheme to reduce the public sector wage bill (the scheme, under which 30,000 public sector workers in total were to be placed in a pool, where they earn 60% of their annual salary, was adopted last year, but was soon abandoned), faced strong opposition from the Democratic Left party. Latest news, however, suggest that there is an agreement on the revival of this scheme at the end.
Although Greek politicians generally seem to recognise that this is the last chance for the country to prove itself suitable to continue to receive funding from the EU/IMF, decision making has not been easy under the three-party coalition government. The Greek prime minister’s view that Greece has to deliver first before it can ask for a renegotiation of the programme is certainly the right attitude. But, Greece has already faced some difficulties in meeting its commitments. First, it took the cabinet longer than expected to agree to spending cuts for 2013-14 before it met the Troika, which delayed the Troika team’s departure from Athens. Second, disagreements among the three party leaders have made it hard to finalise details of EUR 11.5bn of spending cuts this week. According to the Greek finance minister, around EUR 4bn of measures out of EUR 11.5bn still needed to be detailed. One of the measures to fill this gap, the revival of a labour reserve scheme to reduce the public sector wage bill (the scheme, under which 30,000 public sector workers in total were to be placed in a pool, where they earn 60% of their annual salary, was adopted last year, but was soon abandoned), faced strong opposition from the Democratic Left party. Latest news, however, suggest that there is an agreement on the revival of this scheme at the end.
Overall, it seems to us that Greek political developments will be key to watch, as the government’s efforts to meet the demands of the Troika by mid-September still face challenges.
Underlying problems need to be tackled
The fact that the Greek government is trying to catch up with the implementation of the programme to impress the Troika is good news, but as Greece has already failed to meet the performance criteria to get a positive review assessment, the outcome of the review remains uncertain. In addition to Greece’s lack of implementation of the programme, a deeper-than-expected recession has increased the difficulty of fulfilling the programme.
Thus, the overly optimistic projections of the programme are already off track. This points to a need for some sort of additional help to Greece if the debt-to-GDP ratio is to be deemed sustainable under the IMF’s assessment. In other words, the underlying problems of the programme need to be tackled.
What does this imply? Given the high share of official-sector ownership of Greek debt after the PSI (around 70% of the total EUR 335bn of total public debt by end-2012 – assuming programme disbursements will be made – on our forecasts), we continue to believe that Greece needs some sort of relief from its debt to official creditors. As the IMF loans (EUR 22bn disbursed) have seniority, any potential relief from official sector debt could be on: (i) Bilateral loans from eurozone member states under the first programme (EUR 53bn); (ii) ECB holdings (around EUR 46bn left after redemptions so far); and/or (iii) EFSF loans (EUR 74bn disbursed).
It would be politically difficult to impose a haircut on bilateral and EFSF loans, but the interest Greece pays on these could be lowered as a relief. In this respect, a potential haircut on the ECB holdings, together with the ECB foregoing the interest it receives on old GGB holdings, could be an option. The ECB’s August statement that the ECB is to address “concerns of private investors about seniority” regarding sovereign bond purchases provides some food for thought, in this respect, as it could potentially have implications for Greece.
Another option that could be considered to reduce the stock of debt is to allow the funds Greece has received and will receive from the EFSF for bank recapitalisation (from the total of around EUR 50bn earmarked for bank recapitalisations, Greece has received around EUR 25bn so far. Recoveries, through the sale of bank equity, estimated at EUR 16bn, put the net financial system support at around EUR 34bn) to not go through the government’s account, i.e. a similar treatment to Spain. This alone would lead to around a 17%-of-GDP decrease in the Greek debt-to-GDP ratio. However, any decision on this would need to wait for the ESM to come into effect and be allowed to recapitalise banks directly, after a single supervisory authority is in place.
On potential official sector involvement, the WSJ recently reported that the IMF is already pushing the eurozone governments to reduce the debt burden on Greece and even to consider a debt-to-GDP ratio of close to 100% of GDP by 2020, rather than the current target of 120%.
On the basis of our forecasts for the primary budget balance and real GDP, and using the IMF March forecasts from 2015 onwards (assuming privatisation targets under the programme are reached), the debt-to-GDP ratio should reach a peak of 179% in 2013 and be close to 140% by end-2020. If the new aim is to reduce the debt-to-GDP ratio to 100%, our forecasts show this would imply an overshoot of around 40% of GDP (around EUR 80bn), suggesting that a combination of the above options needs to be considered to reduce the stock of debt.
Conclusion
We continue to believe that a Greek exit from the eurozone would still have significant contagion effects near term, given that a plan for Spain and Italy is unlikely to be spelled out soon and the ECB has yet to work out the details of its potential unconventional policy action ahead. Thus, a decision on Greece will eventually be a political one. Against this backdrop, we stick to our view that, after a very tough renegotiation period, Greece is likely to be given the second tranche of the loan (with more conditionality attached to it) as long as the Greek coalition partners stick together to deliver the Troika’s demands.
and naturally just as one considers what Germany has to say above , look at what is floated below......
http://hat4uk.wordpress.com/2012/08/12/greece-exclusive-deal-has-been-done-to-pay-off-bondholders-and-forgive-residue-of-debt/
GREECE EXCLUSIVE: ‘Deal has been done to pay off bondholders and forgive residue of debt’
Samaras…big secret, upping the pace of austerityFRENCH DIPLOMATIC SOURCE CONFIRMS BIG NEW CONTAINMENT PLAN FOR GREECE
‘What the deal does is allow another default date to come and go with everyone pretending it hasn’t happened.’
Another day, another bonkers conspiracy theory from The Slog. Greece has done a deal to put the lid on the Greek crisis? Pah! Formation of Greek/Israeli/Cyprus/US alliance? Fiddlesticks!
Let’s take the deal first.
There is a tradition in Greek politics that the government of the day delivers a speech and holds a press conference during the annual Thessaloniki International Trade Fair. Organized by Helexpo, it takes place every September at the Thessaloniki International Exhibition Centre. This convention of a sounding-board for those in power has been going on since 1926. Only during the German Occupation was it interrupted.
But the Samaras government has decided to neither speak nor take questions. No explanation is being given as to why. Another email from a regular Athenian media contact:
“Something has been agreed, and whatever it is has made the bondholders and the Troika irrelevant overnight. There are half-hearted references to repayment schedules, but they don’t have that sense of panic evident just a few short weeks ago. But you can see that Samaras is now pushing for more austerity progress.”
He is indeed. Greek media are reporting that Prime Minister Samaras told government ministers to complete work this month on 77 amendments to be included in a bill that aims to speed up state asset sales.
One clue comes from a senior tax office executive who has blown whistles to The Slog before.
“I think the Troika made a catastrophic error some days ago,” this person told me yesterday, “either that, or they did this deed to create a showdown. I don’t know which, but it concerns the EU demand that the Greek civil service should have its headcount drastically reduced. Samaras and Stournaris are all for it, Venizelos [PASOK] is nervously against, and Fotis Kouvelis [Democratic Left] is flatly refusing to even consider it. No crooked politician in Greece dares to attack the civil service, for obvious reasons. This is a major sticking point”.
It’s an interesting view, but it doesn’t on its own in any way explain the dramatic change in Troika/bondholder v Government atmosphere the week before last. Somebody, somewhere in Europe flicked a switch within the last ten days, and everyone relaxed.
Now a close French diplomatic contact has told The Slog:
“Brussels or Berlin…or both…or others…have given Samaras a big reassurance that if he sticks with the [austerity] programme, Greece will not be thrown out of the euro. Those same people have given similar assurances to the key players in the IMF and bondholder groups…that if they take another haircut, the EU will pay off the balance and give them their money back. The secrecy is to do with Merkel being flayed alive at home if they thought she was doing this, and Draghi ensuring that his central bank doesn’t become an open door for insolvent States and panicky bondholders.”
Now this is an interesting one: the talks stick over the issue of bureaucrat firings, so somebody decides to break the deadlock using a judicious mixture of EU acting like a sovereign plus debt forgiveness. But it will be packaged in such a way as to disguise what it is. This is, of course, precisely what the ECB has done over Spain, and to some extent Italy; so to that extent it rings true. Has Draghi engineered this deal as the next step in neutering Germany…or has he formed some sort of pact with Merkel during her holiday – which ends tomorrow? Are the Americans in the loop?
I don’t know for certain: but logic points the finger at Mario Draghi.
This Tuesday, Athens will auction some short-term bonds to pay off the €3.2 billion bond repayment due on Aug.20. Greece being able to do this successfully will avoid the country having to seek yet more emergency funding on top of the bailout loans it receives from EU and IMF funds.
The €3.2 billion bond that matures August 20th is held by the European Central Bank.
It seemed odd that nobody looked concerned by everyone going on holiday with default due on August 20th. Now we know why. What the deal does is allow another default date to come and go with everyone pretending it hasn’t happened. Success or failure after the bond issuance, the ‘Greeks’ will meet the maturity date.
It is becoming increasingly potty to stick with the view that nothing is going on here. As the Economist points out this week:
‘There is a common fallacy, not least in Germany, that dropping the Greeks would be a fairly costless way to teach a useful lesson. In fact the European Central Bank (ECB) owns Greek bonds with a face value of €40 billion ($50 billion), which would be converted into devalued drachma and which Greece might not service. A further €130 billion or so of loans that Greece received in the bail-out would have to be written down, or written off. The €100 billion of the temporary debts Greece has stacked up in the ECB’s payments system would crystallise into a loss. Add in a one-off grant of say €50 billion to tide Greece over—call it conscience-salving “solidarity”—and the bill might come to €320 billion. Estimating the price of a “Grexit” is guesswork, but Germany’s share might reach €110 billion of this, about 4% of the country’s GDP.’
Those nutters at the Economist, eh? What will they come up with next?
Now for the strategic alliance story. Starting from the vantage point of Greece-Turkey relations over Cyprus, I was (I think) the first to point out that Putin was trying to strengthen his ties with the Greek Cypriot regime. I also posted several times earlier this year about Turkish raw material ambitions in the Aegean, and the virulently anti-Israel stance being taken by that nice, normal Recep Erdogan. The comms/energy pipeline agreement between Greece, Cyprus and Israel quickly followed as a topic here, and now – following the visit of Shimon Peres to Athens last week – comes further evidence of a cemented alliance.
The output from the visit is that Greece and Israel will move towards much closer cooperation on defense issues, including the joint manufacture of defence systems. Government sources confirmed this to news-site Ekathimerini, adding that the Syrian bloodbath and arrival of warships warships in the Southeastern Mediterranean have confirmed the two sides’ mutual view that closer defensive cooperation is essential. A senior bod in the Israeli Ministry of Defence, Shmaya Avieli, will visit Greece before the end of August to continue the talks and scope out some projects.
Clearly, neither side is hanging about on this one. But it’s all just more Slogbollocks anyway, so I wouldn’t worry over there at the Foreign Office, chaps. You just carry on getting it completely wrong: it’s a long-standing tradition, and it’d be a shame to change it now.
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