In normal times we would be entering the usual summer lull just about now. Instead we find ourselves in what the military would call a target rich environment as we see more falls in Chinese equity markets and indeed commodity markets and more parochially today’s UK Budget.Of course the South China Territories (Australia) will be in the news later for sporting reasons as well as economic ones as the Ashes cricket series fires up. However some extraordinary events in Europe have taken centre stage one more time as the Greek saga finds ever more twists and turns.
The European Central Bank
The trend towards having a “mission statement” has spread even to central banks and the section relevant to the Greek crisis is shown below with the emphasis being mine.
The European Central Bank is responsible for the prudential supervision of credit institutions located in the euro area and participating non-euro area Member States, within the Single Supervisory Mechanism, which also comprises the national competent authorities. It thereby contributes to the safety and soundness of the banking system and the stability of the financial system within the EU and each participating Member State.
Thus we see that the ECB defines itself as the very model of a modern central banker. However we know that its behaviour in Greece has diverged from the ideals of its mission statement and this has reached what I consider to be extraordinary heights this morning. Let me hand you over to Christian Noyer who is also head of the Bank of France as well as being on the ECB Governing Council. From Daily FX.
ECB’s Noyer said it seems impossible for Tsipras to reopen banks now and the only possible solution for Greece is political accord.
So the ECB is trolling the Greek banking system now? Lest we forget its mission statement says that it is supposed to promote “safety and soundness”! Perhaps Monsieur Noyer will explain to us how encouraging a further bank run fits with that part of the ECB mission statement. How does he think that Greek depositors will respond to being told such news?
Actually he was not finished according to Agency-France Press (AFP).
“The Greek economy is on the edge of catastrophe. A deal absolutely must be found on Sunday because it will be too late after that and the consequences will be serious,” he told French radio, adding that “there could be riots… and chaos in the country”.
The air must be very rarefied at the top of the Bank of France because he appears un aware that the Greek economy has already seen quite a catastrophe. Perhaps Monsieur Noyer’s sub-conscious mind has blocked off thoughts of his part in this disaster due to it being too painful. He was clear however that the new deadline of Sunday will be the final one.
Our rules oblige us to stop immediately at that point when there is no prospect of a political accord on a programme, or at the point when the Greek banking system crumbles – which would happen if it enters generalised default on all its debts.
I am not sure I can ever recall a central banker threatening the banking system he or she is supposed to protect before but I think we can be pretty clear that all my warnings about the ECB not being a true “lender of last resort” have – sadly for Greece – come true.
European President (one of the five) Donald Tusk joined in with the rhetoric that is some countries would find the speaker in court for encouraging a bank run.
Our inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system. And for sure, it will be most painful for the Greek people.
It is revealing that the banking system gets a mention before the people of Greece as it would appear that the priority list goes French/German banks then Greek ones then maybe the Greek people. It also leaves the “independent” ECB in an awkward place as it supports what are political objectives. Indeed it is the “muscle” that is being applied by the Euro area to Greece.
Meanwhile Mr. Tusk might well mull the song of the same name and apply it to Greece.
Why don’t you ask him if he’s going to stay?
Why don’t you ask him if he’s going away?
Why don’t you tell me what’s going on?
The end is apparently nigh!
Sunday’s meeting is apparently it. From President Tusk.
But tonight I have to say loud and clear that the final deadline ends this week.
There has been considerable inflation in proclamations of final meetings on this subject to say the least! Some Might Say Definitely Maybe about that…..
The Greek economy
It is easily to forget amongst all the political machinations and power-plays the impact all this must be having on the economy of Greece. If you set out to crash an economy this is exactly how to do it. Raise all sorts of political and economic uncertainty, crunch the banking system and make dark threats about the future complete the set. Today’s official trade figures from Greek statistics confirm this.
The total value of imports-arrivals, for the 5-month period from January to May 2015 amounted to 18446,6 million euros (20444,0 million dollars) in comparison with 19454,2 million euros (26627,4 million dollars) for the corresponding period of the year 2014 recording a drop, in euros, of 5,2%.
The drop in imports accelerated to 10.2% in May which indicates what a squeeze is going in domestic consumption there. I fear for what the numbers from then to now will be and what they imply for the Greek economy.
Ironically this will improve the trade figures and via them the Gross Domestic Product data. But as we note that exports are flat (strictly 0.02% higher) we see that not only has there been no genuine or welcome boost but a disappointing performance considering the pick-up in the Euro area economy.
Greece has some market access
Something really rather extraordinary was released today by the Public Debt Management Agency. It was that some 6 month Treasury Bills were sold at a yield of 2.97%. Would you want only 2.97% to cover you not only Sunday but the likely turmoil and possible exit of Greece from the Euro area going forwards.
Some care is needed as this is in essence a roll-over and the Greek state is in effect only dealing with the Greek banks here but nonetheless it happened. It could be a race between both sides to see who declares insolvency first…….
This is a race which has had the bell rung on the final lap some many times that we would have 1500 metre runners completing a marathon by now. We find ourselves reviewing a Euro area establishment blaming the new Syriza government for just about everything having apparently wiped their minds of the period 2010-14 when they enforced policies which collapsed the Greek economy. Now they wish to enforce a new austerity plan which on the 23 rd of June would have this effect.
The impact will be to reduce GDP by 1.5% to 2% this year and to reduce it by 3-4% next year!
Just to add to the air of unreality Euro area leaders and officials continually tell us that debt restructuring is not a possibility for Greece. Makes you wonder why Greece would want to stay in the Euro doesn’t it? This returns me to my original policy prescription that Greece should leave the Euro and default and devalue. Sadly even such a move is less favourable than it was back then but as we stand it represents the only hopeful course of action in my opinion.