For the second time in a couple of months voters in an election have delivered a result which has surprised the “experts” and pollsters. In the UK we saw the opinion polls misfire badly but yesterday’s events in Greece saw them in even more disarray. The referendum which was supposed to be neck and neck turned out to be as shown below. From the BBC.
The final result in the referendum, published by the interior ministry, was 61.3% “No”, against 38.7% who voted “Yes”.
Accordingly we are left again wondering as to the value and worth of opinion polls as rather than a close result we saw a decisive one.
Some care is also needed in considering what was decided as it was presented by both Euro area politicians and some sections of the media as a vote on the Euro. This was deliberately misleading as Prime Minister Tsipras was very clear on this point in his statement on the first of the month..
Sunday’s referendum is not about whether our country will stay in the Eurozone.
The vote was about a specific bailout package and the extra austerity measures it will pile onto an already struggling Greek economy. As time progresses the No vote does make it more likely that Greece will leave the Euro but as of this morning it is still there and has no immediate plans to leave. Frankly I consider that to be a shame as I have argued for several years now that Greece would be better off if it left the Euro. As to those on the other side of the argument they have created an economic collapse in Greece which some five years later shows virtually no sign of ending.
Finance Minister Varoufakis Resigns
An extra factor has been thrown into what was already a complicated mixture by the fact that the Greek Finance Minister Yanis Varoufakis has resigned this morning at what you might easily think was his moment of triumph! Here is his announcement.
Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today.
He had a chequered tenure but he was willing to stand up to the bullying and intimidatory tactics of the Euro area establishment and their media acolytes for which he deserves credit. Actually it looks to be the type of resignation where someone is given a push.
The issue of democracy
Perhaps the concept of democracy is not as dead as I have thought! Let us hope so. Although the Euro area tried its best to dampen such thoughts.
President Juncker is consulting tonight and tomorrow with the democratically elected leaders of the other 18 Eurozone members.
However as we recall the role of the European Central Bank (ECB) in all of this and let’s face it there have been periods where it has driven events this bit sounds profoundly undemocratic.
as well as with the Heads of the EU institutions.
Also as the other four European Union Presidents join him voters may wonder as to when they had the chance to vote for any of them?
What next for the ECB?
The next step in the Greek saga involves the ECB deciding what to do about its support for the Greek banking sector. This is crucial because its decision to freeze the level of help called Emergency Liquidity Assistance or ELA at 88.6 billion Euros led to the Greek banks closing their doors and restricting ATM withdrawals to 60 Euros per day for Greek residents. We know that in spite of such measures to restrict the size of deposit flight the theme has continued. From Reuters.
Greece’s central bank will file a request on Sunday that the European Central Bank raise the amount of emergency funding (ELA) for Greek banks, the country’s government spokesman said on Sunday.
Not for the first time in this saga the unelected ECB finds itself centre stage in the crisis which torpedoes somewhat the argument of President Juncker discussed above. However unless it wants to drive Greece out of the Euro which would be awkward to say the least for an organisation which considers it “irrevocable” it cannot cut ELA today. Should it raise it then that would be perceived as a victory for the Greeks against it and some sort of reward. Therefore logic points at an unchanged level for today.
This has risen considerably after the referendum result as frankly all roads lead to it now. Should Greece leave the Euro it is logical for a default to also occur and should it stay there will have to be what is euphemistically called a “debt restructuring”. Whilst some care is needed as these days that market is very illiquid Greek bonds have reflected this by plummeting in price.
DEALERS INDICATE GREEK 2-YEAR GOVT BOND YIELDS 13 PERCENTAGE POINTS UP AT 48 PCT BUT NO TRADING GOING ON – TRADEWEB (h/t @moved_average )
The moves when the referendum was announced and following the referendum result could hardly be more clear. However these days most Greek bonds are in official hands and they seem to be not only lagging events but also in some alternate universe far,far away.
ECB’s Noyer Says Cannot Restructure Greek Debt To Eurosystem (h/t @livesquawk)
As the International Monetary Fund considers itself to be not only a preferred creditor but the preferred creditor we now have both the main institutions dismissing what is obvious to everyone else. Or to be more specific both seem to want the other to take the pain! The body which is most devoid of reality on that front is the ECB because even if the IMF wrote off all of its debt it would barely scratch the surface of what is required.
The Debt Sustainability Analysis of the IMF told a very different story.
Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable.
It also confirmed one of the running themes of this blog which is that along the lines of to infinity and beyond the Greek debt is on it way to becoming perpetual debt.
the maturities of existing European loans will need to be extended significantly
We have had a lot of d-days, final countdowns and even h-hours in the Greek crisis but I think that we finally have a day which will result in a clear change and that it July 20th. Why? It is when Greece has to pay some 3.5 billion Euros to the ECB because one of its sovereign bonds matures. As it does not have the resources to pay this then as David Bowie put it we will have to see.
In the meantime Greece has been making some payments since its default to the IMF. It made a payment on a Samurai bond (Japanese yen denominated) last week and plans to pay the coupon on its July 2018 bond today.
The Greek Economy
Contrary to the claims of the Euro area establishment and the institutions this remains in quite a mess. Their version of events that Greece was just about to turn a corner conveniently ignores the evidence of the collapse in previous years. RBS have captured the dire state of affairs in the chart below.
Yes that is 1985 and it provides quite a counterpoint to Euro area apologists as Greece has indeed retraced to then. They of course forecast exactly the reverse which is why Greece joined.
I think that there are several hopeful factors in what has taken place in Greece over the weekend. Firstly an attempt by the Euro area establishment to bully and intimidate Greek voters has failed. By the way when did media organisations like the Economist and the Financial Times turn into such establishment lackeys? Secondly even such an establishment is likely to balk at actively pushing Greece out of the Euro it has told everyone is “irrevocable” so there is a good chance it will sweeten its offer. Thirdly Greece continues to edge nearer to a Euro exit and whilst it would have been much better if it had done so several years ago it remains the best out of an admittedly poor set of choices.
As to the two bargaining groups of the Greek government and the institutions then I feel that both sides now want this to be over but here is the catch. They both want to be able to blame the other or as Lily Allen put it.
It’s not me it’s you
Always has been you
All the lies and stupid things you say and do
It’s not me it’s you
All the lies and pain you put me through
I know that it’s not me it’s you
It’s not me it’s you, you
Unfortunately the Greek people are also singing along to Stealers Wheel.
Cause I don’t think that I can take anymore
Clowns to the left of me, Jokers to the right,
Here I am, stuck in the middle with you.