Last night came the news that the Greek Parliament had voted in favour (229 versus 64) of the measures required for in return for a third bailout package. Ironically the deadline appeared to expire at midnight in Athens came and went but the rules were as malleable as ever and a switch to midnight Brussels time was made. Perhaps the establishment will let us know if Greece will be expected to switch its clocks and run on a central Euro time in future!
A fly in the ointment was that whilst Greek deputies voted for the bailout package no-one actually seemed to believe in it with the Prime Minister Tsipras stating this.
The government does not believe in these measures
Actually one may also question his grip on reality as he also stated this.
PM Tsipras says that the fiscal framework of this new agreement is much lighter than any previous one. (h/t The Greek Analyst).
So I guess even fewer will believe in the package when they discover that it is heavier or tougher than previous ones. Also as time goes by we will discover that the recent turmoil in the Greek economy will lead to further measures in a by now familiar cycle of decline and despair.
On the other side
Quite how the Euro area can consider this to be evidence of a change in Greece I am not sure. This vote has been achieved by strong-arm tactics and threats and so far in the five years of bailouts the various Greek governments have failed to enact the reforms promised. One of the main planks of the strategy is the 50 billion Euros of privatisations I discussed on Monday whereas in reality Greece has made a litany of promises in this area whilst reality has been a relative pittance. Accordingly for all the promises and threats we are likely to be back in a situation described by Paul Simon.
Slip slidin’ away
Slip slidin’ away
You know the nearer your destination
The more you’re slip slidin’ away
What about the Greek economy?
This underpins everything although there has been something of a landslip going on. Let me illustrate by using a forecast made by one of the troika now called institutions as recently as the 5th of May.
the economy is now forecast to grow by around ½% in 2015
Whereas this morning a rather different picture is being displayed.
EU makes dramatic revision to economic forecasts, sees recession of 2-4 pct this year (h/t Macropolis)
Only last winter (following my rule for such forecasts ) we were informed that the outlook for 2015 was bright and that 2.5% growth was expected. Quite a drop isn’t it and remember that it is happening to an economy that is already depressed. Also whilst the EU blames Tsipras and Syriza this has been a consistent theme in the Greek crisis as rose-tinted optimism meets a grim reality.
This comes from car registrations and on the surface the numbers appear optimistic. Car registrations in Greece rose by 13% in June to 8,999 and in fact is up 15.1% for 2015 overall. However there is a troubling undercut to the apparent optimism which is that the cars are being used as a way of mobilising cash as fears of bank haircuts rises and also get money out of Greece. I recall ExpatInBG mentioning seeing more cars with Greek plates in Bulgaria. I asked on Twitter for evidence and got the replies shown below from the economist Parina Stiakaki.
Empirical. (1) Living in Athens one oould see TVs Fridges etc being snapped up, these shops made a roaring trade. Cars too.
(2) A buzz among friends, better to buy a car now than lose savings outright. A kind of buying panic gripped people.
(3) People even rushed to pay off all debts & taxes due owing to fear of bail ins. It was extraordinary but made sense
Sadly on this road even what appears to be good economic news morphs into a description of yet more turmoil.
What about the bailout itself?
A consistent theme in the Greek bailout story is the way that the bailout vehicles have been something of a shambles. Regular readers will recall my critiques back in the day (2010) of the EFSF (European Financial Stability Facilty). These were proved true not only by events but also by its Windscale to Sellafield transformation to the ESM (European Stability Mechanism) for future bailouts. However according to the head of the ESM Klaus Regling this morning there will be another shortfall.
I expect a large part, but not all, to come from the rescue fund, perhaps 50 billion.
So just another 35 billion to find? There are a litany of problems here.
As to the IMF there is the not so small issue that Greece has missed another payment this week and so it now owes it some 2 billion Euros. Of course in this mad world we cannot rule out that Greece will be allowed to repay the arrears with money borrowed from the IMF. Also there is the not inconsequential matter of this and remember even these grim figures rely on rose-tinted assumptions and estimates.
Greece’s public debt has become highly unsustainable……..The financing need through end-2018 is now estimated at Euro 85 billion and debt is expected to peak at close to 200 percent of GDP in the next two years…… Greece’s debt can now only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.
In the insane environment that has been created at the IMF by Dominique Strauss-Khan and Christine Lagarde it is by no means impossible that it will press on in such a situation. But the pips are being squeezed because with likely losses in Ukraine too the IMF is reminding regularly of its senior debt status. Or in other words others will have to pick-up the tab. The same others who say that they won’t!
I have been to a few group dinners at restaurants where they is some tooing and froing over the bill and each individual share. Fortunately I have never been to one like this!
As I discussed yesterday this is being called in for bridge financing as the ESM is not yet ready and Greece needs money in terms of the film Snatch “sharpish” (just over 4 billion Euros on the 20th to pay the ECB for example). Apart from the awkwardness of calling on 28 European members including the UK about an issue where only the 19 Euro members have a vote there is another problem.
You see the EFSM can only be used if it is not a Euro emergency and the ESM can only being used if it is!
In spite of the economic collapse Greece is supposed to find some of the money itself according to Herr Regling.
Privatisation receipts will also be part of the package…….Greece will regain market access,
In the five years so far of “on track” bailouts Greece has actually delivered around one tenth of the privatisations which are now promised. As they presumably started with the easiest ones I see trouble ahead.
I bet that the ECB wishes that its changed timetable did not involve a meeting and especially a press conference today! Mario Draghi must be wondering if every question will be about Greece? I would not be surprised if a plan was in place to reward news organisations who ask about other matters. A bit like the way that Prime Ministers Questions operates.
Already broad hints are being dropped that the amount of ELA (Emergency Liquidity Assistance) to Greek banks will be frozen at 89 billion Euros. As they continue to see deposit outflows this means that the cash and indeed credit crunch will continue to tighten its noose around the neck of the Greek economy.
This looks quite a shambles. The Greek economy travels ever further south as the Euro area realises that their 8 am arithmetic after an all-nighter has as many holes as a Swiss cheese. Just as an example of this there are many graphics going around showing a 65 billion or so contribution from the same ESM which thinks it is only contributing 50 billion. What could go wrong?
I–I hardly know, sir, just at present– at least I know who I WAS when I got up this morning, but I think I must have been changed several times since then.
It all just gets sadder and sadder as we progress with a scheme which nobody seems to believe in. I fear that Greece will leave the Euro when its economy is so far weakened that even default and devaluing may happen at a time when nothing works.
I can’t go back to yesterday because I was a different person then.
In another moment down went Alice after it, never once considering how in the world she was to get out again.
Mario Draghi Press Conference
We learnt a few things from this. Firstly the ELA rumours were wrong.
Draghi: Increased ELA 900 mln over one week
Also we were told that there were 8.1 billion Euros of deposit outflows from Greek banks in June which means that they have fallen to 120 billion Euros. So there has been a cross-over of sorts.
Draghi: Total exposure to Greece now 130 bn
Should the ECB wish to exit Greece then Barnejek has helpfully done the necessary calculations.
At 60€ per day it would take the ECB 5,936,073 years and 21 days to withdraw their ELA exposure from Greek ATMs.