Greece travels further into Alice In Wonderland territory

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.

Today’s Data

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!

Greece itself

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.


22 thoughts on “Greece travels further into Alice In Wonderland territory

  1. Hi Shaun

    I think things have gone so far now in the EU that Greece will have to undergo social and economic collapse before the true situation is recognised and, by then, it will be a question of humanitarian aid not bank bail out money.

    This whole episode does more and more damage to the EU project as a whole with every day that passes and the Eurocrats seem ever more oblivious to what they are doing, which just shows how far things have gone.

    • Hi Bob J

      It is all a little like the Ancien Regime in France before the revolution isn’t it? I suspect establishments always go like that except perhaps like so many things developments have sped up in the modern world. All we need is for some to (supposedly) say “Let them eat cake”.

      • Myth created to mitigate cruelty, by making her seem just out of touch.
        Marie Antoinette actually said, “Let them eat grass.”
        Bit like the oats, horses and sparrows analogy.

  2. As usual, Shaun, its good to read the realities behind the guff! When not only Tsipras doesn’t believe in the “deal” and when a heavyweight like Schauble says he “believes a temporary “Grexit” – Greece leaving the eurozone – would perhaps be a better option”, then you have to wonder whether anything will come of this package…. Greece out by Christmas? A good each way bet…

    • Hi Ray

      I still think that each side is waiting for an opportunity to blame the other for “Grexit” a bit along the lines of Lilly Allen’s “It’s not me its you…”

      This afternoon events took a very bizarre turn as Mario Draghi stated that everybody knew that Greece needed debt restructuring. So far his organisation the ECB has insisted on full repayment and the IMF wants seniority. Thus everyone seems to want everyone else to take the hit.

  3. Thanks Shaun. Pithy and succinct as usual.
    What we now have is a deal where:
    Greece doesn’t think it’ll work.
    The IMF doesn’t think it’ll work.
    The ECB doesn’t think it’ll work.
    Even Wolfgang Shaeuble doesn’t think it’ll work. (that’s why he wants Grexit, as he believes ONLY THEN can Greece get the help she needs)
    I would also be willing to bet £300 to a bucket of ermm…manure, that, at least privately, not one of the finance ministers believe it will work?
    So why is it happening?
    We’ve been told, time and again, that Greece’s debt is, in the whole scheme of things, insignificant?
    Is it because oppression of the Greeks disciplines Italy, Spain and Portugal?
    What kind of empire, ermm… Union is this?
    One that relies on fear and oppression?
    Worse than the old soviet empire.

    • Even the Greek man in the street who is in favour of this deal does not believe it will work! All they want in the short term is for the banks to re open, normality (or whatever passes for it in Greece these days ) to return briefly, just to have a rest from the stress of it all. As you point out, a lot of the tactics are to encourage the left in Spain and Portugal to think again and Rajoy is making political capital out of the Greek situation. The Eurocrats don’t believe in the deal either but by not publically saying so they don’t have to admit to their tax payers that the money has gone. The markets are also playing pretend as well – pretending that this doesn’t show that the Euro project is fatally flawed. If I had managers who behaved like this in business I would have fired the lot of them!! No one has a credible plan how to get out of the mess they have created.

  4. Frankly Shaun the Greek banks should have been, and can be still , fully backed by the ECB and that they should not be closed or restricting withdrawals

    What the point of a lender of last resort if its not ?

    This should be parted from the ability of the Greek Government being able to able finance its spending and they should be offered all help in changing their laws and enforcement of taxing everybody in Greece who can afford to pay

    Whats the point of raising VAT if people are not paying it anyway ?

    Enforce the income tax laws , not use leccy to get it!

    Thus they can be then seen to be drawn into closer fiscal union and the results will be applauded around the US of Europe

    And thus the Empire will grow stronger


    • Hi Forbin

      Speaking of Empires some wags were circulating pictures of the Death Star from Star Wars due to some similarities with the new pictures of Pluto.

      But moving to the Euro area there was something not fully expected today as the ECB added 900 milion Euros to ELA. Although the phrase “fully and completely” meeting the needs of the Bank of Greece convinced no-one and was an odd phrase for a weekly addition.

      However I agree with you to be a LOLR it had to keep supplying funds and also to be able to exert some discipline on the Greek banks.

  5. Hi Shaun,
    “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.”

    As you know, I believe Greece has already arrived at this unfortunate position.

    There now seems to be a probability that the IMF will walk away from this deal.It was always obvious that Greece required a further significant hair cut to it’s debt if it was to recover,regardless of the pain inflicted on it’s creditors – Oh hang on, that’s mainly Public Sector now isn’t it? Last time when there was significant Private Sector involvement they seemed happy to declare Private Sector hair cuts, of course, if they declare hair cuts this time they’ll have some explaining to do to the electorate/tax payer!

    Isn’t this similar to the conditions that created Nazi Germany?…..

    My “nomination” for today is not a song but a film – “The Empire Strikes Back!”

    • Hi Noo2

      You are far from the first person to remark on the growing similarities with the 1930s. It would be depressing if it turned out that we as human beings had learned nothing from that.

      As to the Empire Strikes Back perhaps the Euro area can modify Pluto into a Death Star….

      Even if they wiped out the whole amount of Greek debt owned by the private-sector it would make little diference now.

  6. If, as it seems, the EFSF is to be used to underpin this deal, by giving Greece €7bn bridging it would appear that the UK’s opt out from the Euro extends only as far as the benefits.
    The sceptics will have a field-day wit this.

    • Hi therrawbuzzin

      It is the EFSM that seems set to be the 7 billion bridge finance for the ECB and IMF payouts and yes the UK backs it. We supposedly have guarantees from ECB SMP profits but why not just pay it out of them?

      I think that the Brexit campaign cannot believe their good fortune right now.

  7. Hi Shaun,

    I read on the BBC that that IMF rules have been bent. Better later than never.

    Yet another bailout which goes to help make bank repayments.
    Yet again good money thrown after bad.
    Yet again a bailout that nobody believes it will work, but they persist with this crime. (See EU law on cross border bailouts)

      • EU treaty forbidding cross border bailious are applicable to the ECB and EC member state govts.

        But separately there is some press reports about breaches of IMF guidelines, and maybe worse.

  8. Hi Shaun,
    The referendum rejecting austerity seems like a long time ago now – it now looks like a crazy waste of money – particularly as that’s in short supply.
    I find it quite amazing that the majority of Greeks still want to stay in the EZ – was the Drachma really that bad?

    “But I don’t want to go among mad people,” Alice remarked.
    “Oh, you can’t help that,” said the Cat: “we’re all mad here. I’m mad. You’re mad.”
    “How do you know I’m mad?” said Alice.
    “You must be,” said the Cat, “or you wouldn’t have come here.”

    • Hi Eric

      I think that they fear a return to an era of currency depreciation, inflation and the odd military coup. Trouble is they are on the road to something worse.

      That Lewis Carroll quote applies to pretty much any Euro area meeting these days.

  9. Hi Shaun,

    If you look at the deal from the bankrupts point of view, what is going on, all makes sense. Agreeing to everything and anything however onerous the terms and making every promise in the book to sort things out and be prudent in the future. All that counts now is getting your hands on the money and getting through another day… week…. month, as you’ve got the money. This will go on for as long as EU politicians and their taxpayers allow it! Being a Greek politician can hardly be considered a long term career move since 2010, so why worry beyond tomorrow, give us the money. I’m a Greek politician, we might have a bad track record, but you can trust me, I’m as honest as the days are long to everybody, including with the electorate, so give us the money. Excuse me for asking again, but when did you say the facility will be available and for how much?

    It doesn’t matter what the debts are as they are not going to be paid back anyway, so just keep the promises going, get the money flowing and when it goes pop, it goes pop, as it is well past the point of no return, so why worry. If the creditors are prepared to be tapped up for another €85bn that’s their fault for being so stupid. It’s not their money anyway and it’s not that much per EU taxpayer to keep the Greek pensioners, public servants and unions happy.

    Another day in office, another day over, more bull tomorrow to survive and to get the money flowing in. When somebody has the world on their shoulders, when things go from bad to beyond the point of no return, there is a sense of relief as it is now somebody else’s problem!

    Did I mention mention German TARGET2 borrowing and you expect Greek’s to honour that and pay it back, you’re having a laugh aren’t you? That’s their problem!

    • Hi Rods

      Yes there are plenty of similarities here to an alcoholic or a junkie. The catch is that it is the Greek establishment who take all the highs and the individual Greeks only get the come down and the cold turkey.

    • Somewhat emotive Rods2 and the article is short on detail.

      I am sure you know the lead in time for Government policies to take effect is 6 months – 2 years. As Syriza has only been in power slightly less than 6 months there is no part of the current state of Greece’s economy that may be laid at Syriza’s door in terms of policy change.

      The article itself states that the New Democrat party began looking at ways to escape Troika supervision (although that is not the same as changing policy).

      The article does not supply any examples of Policy changes by either party over the last 12 months but does state, in an amusing statement of the bleedin obvious that the downturn reflects political insecurity and uncertainty over Greek economic and financial policies.

      The point being that uncertainty was building last Autumn when rumours started circulating about Samaras’ consideration of a change of direction, so he and his New Democrat Party started the ball rolling and Tspiras kept running with it.

      As to predictions of 2.9% growth dissolving into 4% contraction I can only say my prediction last year when considering risking some money in the ASE based on improving financial indicators was, er, 0%!!which was actually an improvement over the previous year but did not make an investment case to me. I remember telling Pavlaki a few months ago when everyone was saying the EZ economy was doomed to shrinkage this year and in the forseeable future that the EZ excluding Greece would grow in the 2nd half of this year.

      So I’m saying the article fails to demonstrate that the Greek GDP collapse is due to Syriza (particularly considering lag times on policy changes and the fact that Samaras’ started the uncertainty in the Autumn of 2014) and the commission’s predictions last year are highly suspect although it looks like it might have caught up with reality for Greek GDP in 2015.

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