Greek stocks ventured deeper into purgatory. The ASE index dove below 700 intraday on Wednesday for the first time since the crisis days of June 2012. Then word spread that the ECB had raised the cap on the Emergency Liquidity Assistance for Greek banks by €1.5 billion to €75.5 billion. It’s the oxygen line for Greek banks. Without it, they’re toast.
The ELA provides the liquidity so that the Greeks can continue yanking their beloved euros out of their banks to stash them elsewhere before their desperate government confiscates them.
The government, under the cool leadership of Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, is already confiscating €2.5 billion in “idle” cash that state agencies, state-owned enterprises, and local governments kept at commercial banks, the same banks that the ELA is propping up and that the Greeks are fleeing. Now these entities have to transfer the money to the central bank so that the government can “borrow” it for other purposes.
When word got out that ELA money could continue to flow to the banks for a little while longer, the dreadfully beaten-down FTSE Athens Banks index jumped over 11%. It remains 74% below where it was last June. The overall ASE index recovered to settle above 700. It remains a mere shadow of its former self, down 87% from its cheap-euro-debt peak in 2007.
Greek 2-year yields and 3-year yields, unlike their Eurozone brethren that are blissfully bathing in the negative, jumped to nearly 30%. The 5-year default probability is approaching 90%. In short, the Greek financial markets are kissing the euro goodbye.
But the Greeks themselves love their euro. Enough of them believed the Syriza’s promises to sweep them into power. Now their choice is conflicting with their love for the euro. And by the looks of it, they’d rather hang on to the euro than the Syriza.
The sticking point to getting further bailout money from taxpayers of other countries, mostly those in Germany and France but elsewhere as well, is that Greece is playing game theory and is trying to elevate its extortion racket to a fine art, instead of trying to work out a deal that the taxpayers of those donor countries can live with. Donor countries, not creditors, because they know they’ll never see part of their money ever again.
Media-savvy characters in the government have been using leaks and outright pronouncements to threaten default and even an exit from the euro. It would be a terrible fiasco for the world financial markets, they keep saying, pointing back at the dark days of 2011 and 2012 when vague and subtle expressions by Greek politicians caused stocks in Europe and elsewhere to plunge. But now, stocks and bonds around the world are soaring to new highs. To heck with Greece. Embarrassingly, only Greek markets are crashing.
So the extortion racket no longer works, and the Greeks themselves are having second thoughts about how their representatives have been conducting it.
The approval rating for the government’s strategy has plunged to a measly 45.5%, from 72% just last month, according to a new poll. A terrible cliff dive.
On a scale of 0 to 10, the administration got whacked in its details, earning 4.6/10 on the economy, 3/10 on immigration, 3.7/10 on crime-fighting and security, 4.2/10 on education, 5.5/10 on foreign policy and defense, 4.5/10 on public administration, and 4.4/10 on health.
Only 3% of the Greeks were confident their household finances would improve over the next 12 months, while 26.5% expected their situation to get worse, and another 15% were certain it would get worse.
How did they feel about a “Grexit” – and a return to the drachma? “Fear!” That’s what 56% said – up from 45.5% in March. Only 23% claimed they were indifferent, down from 26.5% last month. And just 9% thought there was no chance of it happening, down from 17% in last month.
Greece’s exit from the Eurozone and return to the drachma, of which it could print an endless amount to pay its bills and salaries and other schemes, would entail a vertigo-inducing devaluation, and all that comes with it.
The Greeks know how that program works. They have experienced the drachma. They see it as a tool by which the government tries to steal from them. They don’t trust their government with the administration of a currency any more than they trust their banks. And Greek parliamentarians don’t want the drachma either. They want their rich pensions to be paid in euros, not in devalued drachmas.
Thus, a Grexit is off the table as far as threats is concerned. It might happen, but it can’t be used as a threat to extort better terms from donor countries. The Greek game-theoreticians can evoke it all they want to, through leaks and on the record, and they can bandy about the threat of blowing up the world markets, but if they want to stay in power and if they want to face their people at home, they can’t go down that road.
Alas, all their negotiating partners know that too. The global financial markets know that. They all could digest a Grexit, but the Syriza government could not. Time to stop playing games and start talking in earnest. Or face some very, very angry folks at home.
Greek banks aren’t the only ones that have problems. The EU competition regulators – not the eyes-closed bank regulators – are going after them. And they have real teeth. Read… This Could Sink Banks in Greece, Portugal, Spain, and Italy
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I personally tired of stories about the EU and Greece.
You shouldn’t be, because instead of defaulting in 2010, Greece bailed out German and French banks so they wouldn’t default. Today, the consequences of that error is seen. You never know when that tiresome story will hit some other country, and maybe yours also, if you’re not from Greece.
“Greece bailed out German and French banks so they wouldn’t default”
That’s a good one :)
“Time to stop playing games and start talking in earnest.” Yes, agree to more austerity. 26% unemployment isn’t high enough. They need to further impoverished their people.
Japan’s fiscal situation is much worse, and they don’t ask taxpayers in other countries to bail them out. They buy their own crappy government bonds. They stash their money in their own banks. There is no capital flight. The Japanese will pay the price, not taxpayers in other countries. But the Greeks don’t buy the bonds of their government. They don’t even leave their money in their banks. There are plenty of wealthy people in Greece. But they invest their money outside Greece. So now everyone else needs to pay for them without demanding a debt covenant in return? You gotta be kidding. The Greeks could solve their own problems without asking taxpayers in other countries for money.
This a million times. Not to say plenty of people in Greece like to evade tax. For me personally, the Greek people have earned this.
The Greek government has some options, including default and all that it will entail. If it defaults, it’s in partial control. If it begs other countries for money, it’s not in control at all, though it’s trying to be in control. This is a debt crisis. And there will be more pain. Now they’re trying to figure out who will feel the pain. The pain in Japan will be felt by the Japanese, and they know it. For them, it’s a question who in Japan will feel the pain, not who in other countries. Debt can be a pernicious thing….
At this point the Japanese aren’t buying their bonds either unless you consider purchase by proxy via the BOJ. But whether it’s people being “good citizens” and buying their country’s bonds or evil Greeks too smart to buy their country’s bonds it’s the common people who get the shaft.
There are only a few ways to get rid of debt:
– Pay it back – ain’t gonna happen with any government.
– Default – total anathema to those who control the governments.
– Inflate it away – they have been trying very hard without success.
– Hand it off to some ignorant sucker. That happened in the US in 2009, it happened with Greece in 2012, Japanese citizens have been dutifully buying JGBs for decades (“they owe themselves the money so it’s all good”). Common citizens have been force-fed the bad debt over and over.
The Greeks & the rest of the EU are dead meat any way they go,..it’s just a question of when!
If they opt out of the EU whatever they have left of an economy will be under deep water & chaotic.If they play ball with the Central Bankers they will die more slowly from an overdose of ‘Austerity’.Chose your poison!
The overarching problem is extremely leveraged debt that can’t ever be repaid by the financial elite!
Leveraged debt that can only be paid with a miraculous growth in global wealth,..which would be a miracle!
The bankers try to inflate their debts away by endlessly squeezing the only people they can,the working middle class! When the middle class goes under the end will have arrived!
comparison to japan is somewhat counter example. first japan has its own currency and 1. did print a lot of money 2. would have incurred devaluation in case of bank run thus making a good deal of it self defeating 2. bis would have prevented investor money to flee the country for the same reason 3. had a central point to implement thus signal possible capital control if need be; second good luck to find someone believe they d have implemented a bailout to pay back *foreign* ie french german and english banks in case of default and make themselves tied to institutional creditors; third, Japans ,has not as far as I know imposed itself a 4,5% budget surplus since decades.
So the only points that holds is that it s fair to ask for some covenants.
Whether covenants including ruining the country further, panic sale all your assets at half price, and refrain from pushing for institutional changes like taxes collecting and corruptions is beneficial for the creditors (ie the TAXPAYER of Eurozone country, NOT their banks, and NOT their asset vultures) is debatable.
…. and themselves.
Greek tragedy with ground hog day time loops over and over again with clowns, extortions galore and drama queen politicians and bankers… Who knows when this comedy will end.
Does anyone on here know what is really happening in Greece? The comments sound like you guys are on a different planet. From my sources, I hear that Greece is going to be forced into default by the middle of next month and forced out of the EuroZone. I think the Euro banking authorities are greatly underestimating the effect this will have on the entire southern tier of European countries. I think it will lead to the breakup of the European Union. The austerity that has been forced on Greece has ruined their economy and made it impossible for them to meet their own needs, much less ever pay off those debts. Those debts are primarily owned by wealthy speculators, not any kind of “taxpayers. I do not doubt though, that the rich speculators will find some clever way to foist off their gambling debts onto the working classes of their own countries. Does anyone on here actually believe that even if you force austerity onto Greece to the point that half the population starves to death that this will do anything to help pay off those debts? I fail to hear anything like common sense on here from any of you about Greece and I am wondering why?
The reason you fail to hear common sense is because there isn’t any. From the onset of the Greek situation, we have been treated to a tapestry of lies by everyone involved. The EMU and IMF lied about the Greek “rescue” that turned out to be a rescue of French and German banks. The Greek Government has lied about its finances, the Greek people, wealthy and non-wealthy alike have cheated on their taxes, hidden their assets, and refused to pull together to save their country. News correspondents have uncritically repeated the crappola they were fed by their “sources”, and the result is confusion. Truth is always a slippery subject, but this is bloody ridiculous. It seems that no one wants Greece to leave the euro, but no is willing to lift a hand to stop it. Whatever the outcome of this fiasco is, the participants will richly deserve it.
Yeesh! You are SO right! It seems like an irredeemable mess. Nothing good can possibly come of this. oh well, as they say in Spanish, “Asi es, asi sera’!” So it is, so it shall be.
At least it’s not our problem…. is it?
“Those debts are primarily owned by wealthy speculators, not any kind of taxpayers.”
Not true. Most Greek debt is now officially held ie not held by the private sector.
I think it is more a matter of that the debt was foisted off onto the private sector. I dont think those big eurobankers would ever take responsibility for a failed speculative venture.
If Greece leaving the EU is all that is required to unravel the EU, it was a failure from the start. Practicing insanity regularly does not confer legitimacy. Why not simply throw billions of Euros into a furnace to keep warm during winter months. Greece will not repay the monies they are given, not loaned.
Really?
It seems like GrEEKs “officials” are confused and confounded to say the least and mouthing off whatever suits their mood at the time. That is very fluid and explosive without any plan b or c or d.
EU is getting tired of the GrEEK chutzpah and brinkmanship and at this point it is politically and economically makes more sense to give the GrEEKs what they want – bring back their own soon to be worthless Drachma.
Of course EU-nians and world investors in the eurozone have already paid a price up to the devaluation of euro of 20% within recent months. Because of their union tragedy where Greece is on the front stage. And they will pay much more if eurozone cracks down
I believe that Greece will default and the ECB will buy up all that bad debt (e.g., make the debt issuers whole) with the QE announced. My understanding of the magnitude of the debt is around $300B Euros?
Greece will fall onto further hard times and this will serve as a stark reminder to Italy, Spain and others not to leave the Euro.
My 2 cents.
Yes well over 75% of that 300billion is now due to other Eurozone countries. Ireland’s with all its own debt made a contribution of 300million when Greece restructured last. The bloody problem was Greek wasn’t allowed to default enough.
Instead of applying logically high debt write-downs and decent proper restructuring, its National debt ballooned in the last number of years as its governments were forced to maintain the debt generated by previous administrations.
The mess in Greece has being compounded by Eurozone policies, true capitalism needs to be applied and if not then all within Europe and further afield will suffer.
Are we expected to live with the “sins of our fathers” for this generation and for all generations to come? Debt has to manageable and reform has to more than just economic GDP and GNP percentages.
.So let the ECB take back this debt in its QE programme and apply correct polices for proper social and economic reform rather talking about expelling the worst pupil in the class.
Athens bit off more than they could chew by hosting the 2004 summer Olympics. The nation borrowed quite a bit to construct the venues, and after the Games ended, they were deeply in debt. I don’t know how that factors into the current situation, but I’d bet it has some cause and effect.
The Greeks gave up their sovereignty when the adopted the euro and relinquished power to Brussels and Frankfurt. Contrast the Greeks to the Hungarians, who kept their nation’s fiat currency, balanced out with the IMF, and told the banksters to keep out of Budapest.
I hope that the people of Greece can come together and exit the euro. Wolf has summed up the situation quite accurately, and that will probably leave the Greek citizens under Brussels’ thumb.
I’m an Irish citizen that has seen the effects of the Trioka EU- ECB-IMF bailout of Ireland and the years of austerity and its effect. Naturally there are pros and cons on every decision made so far.
It’s an INSULT to Ireland and Greece to even use the word “Bailout”- it was a direct transfer of funds to both of our countries National Debt where these funds were then immediately transferred back to OTHER EUROZONE EU BANKS AND PENSION FUNDS ETC, ETC, through bond payments and loan repayments to stop the “DOMINO EFFECT” of our banks debt problems onto their Eurozone banks and their economies therefore preventing defaults and institutional collapses.
In our present Irish “Banking Inquiry” a semi white washing exercise, we are getting some answers from the main players involved. In my opinion then and now -WE WERE BULLIED BY THE POWERFUL TO PAY DEBT WITHOUT “Due Diligence” and legitimate debt write-down as TRUE CAPITALISM extols.
THIS DOMINO EFFECT OF POTENTIAL DEBT DEFAULT DRIVES DECISION MAKING IN THE EU and maybe world wide. The debt that both Ireland and Greece were forced to take during the crisis is a direct result of this decision making.
So let’s cut to the real issue- THE VOLUME OF DEBT WORLD WIDE IS UNPAYABLE and completely UNSUSTAINABLE. It is unsustainable in Greece and it on our books here in Ireland too.
Yes Greece and Ireland have a lot of problems, in both countries these problems have worsened due to debt, Ireland now has the 2nd highest National debt (both personal, business and state debt) 2nd only to Japan, yet this is constantly ignored so the powerful can use Ireland as a beacon for austerity and the policies they continue to implement are deemed justified.
DUE DILIGENCE – on those that borrow- those that lend and those that govern was not and is not applied therefore real solutions are not been implemented (Wolf street articles confirm this over and over again by monitoring and analysing these policies and the effects of this high powered decision making).
Yes reform is critical in both countries, as always it’s the most vulnerable citizens in both countries that suffer the most, at least the Greeks are saying enough is enough, and logically they need space to reform. So let due diligence be implemented , let legitimate debt write down begin and let the reforms be implemented on social and economic terms where the citizens can accept these reforms with civic pride and understand it’s for the betterment of their countries long term.
If this madness continues the domino effect will be triggered and the big players of the Eurozone and their citizens will suffer as our countries have and guaranteed no one will be safe or sheltered and the effect will be life changing, the effects could shatter societies. The governmental polices implemented in Ireland since 2008 has been permitted due to the conservative middle class wanting stability, the working classes are revolting over new water taxes etc. Ireland is vulnerable to collapse again from external financial shocks, due the deb t levels on our shoulders and if Europe does not get its act together and really deal with the debt crisis honestly and logically next phase of this debt crisis will be” Bail ins” the robbery of citizens savings to save the system, that’s when the real crisis begins. True revolution starts when citizens have nothing left to lose. So do no judge Greece and the Greeks harshly, they have problems that demands reform and unfortunately the games at play do not bode well for a solid logical solution for the Eurozone or for all 500million citizens of the EU.
Reform has no chance at all because the tycoons calling the shots economically will never allow it to happen no matter how destructive their policies become to the nations and peoples of the world. In a healthy economy, money is like blood, it has to flow throughout the body of society, being spent and earned, invested and saved, and so forth. Whenever this flow of money stops for long enough, the local economy dies and you can see many vivid examples of this in small towns and big cities both if you ever try driving across the U.S. instead of flying across it. Nations die if the flow of money is halted on a national level. This came close to happening in the U.S. at the beginning of the great Depression but then Roosevelt got elected and he forced the rich to pay their taxes and started money recirculating again to the people. Enough to keep the nation alive. The current setup has the effect of causing a never-ending flow of wealth to the very top and there it stays. The rest of society shrivels and decays. The people at the top are completely oblivious to the harm their greed and hypocrisy is causing. They seem to be unable to see what will happen when their vampirism leads to economic and social collapse. This is similar to the attitude of the French nobility just before the Revolution. I suspect the outcome here will be something similar but on a much vaster scale. Most people will choose to fight rather than starve and the police and armed forces will eventually refuse to murder the people they are supposed to be protecting and will turn on the upper classes. Of course, the people at the top may repent their gross criminal folly and redeem the situation before it goes too far but history doesnt show too many good examples of that sort of thing happening. t see how the unbelievably corrupt situation can turn out anything but disasterously.
I think your view on what the Greek smart-n-savvy people get from staying with the Euro is right-on-target. It encapsulates all political decisions in all societies on the planet: how can the smart-n-savvy people get more.
Let me clarify my first statement.
I honestly care about people who are being taken advantage by their own or other governments. I am tired about all the speculation (love Vespa’s ground hog day reference) around will the greeks exit.
@ Jerry Bear: Never underestimate the grim determination of rich and powerful people to hang on to their status. If Grexit threatens them they will make something happen, somehow, even if they have to tear everything down around them while they do it.
How do you think they’ve managed to defy gravity for so long? By the constant bending, twisting and mangling of financial structures all around the world.
Yeah but that is why violent revolutions eventually become necessary. The rich are relentlessly determined and too often only a violent upheaval of the whole society can break their grip on power. If this happens, then a real blood bath will follow.
First of all: the euro = gasoline. The Greeks will never give up the euro, because it enables fuel purchase. Even if the Greeks ‘go off’ the euro, it will still circulate in Greece in the black (unofficial) markets where Greeks will use it much as they do now. The euro will be Greece’s (un)official currency as long as it exists.
Outside of the euro, there is the dollar. Greece could dollarize tomorrow but the country will still have credit problems. Not because the government overspends or because the Greeks have too many overpaid workers (who sadly happen to be temporarily indisposed) but because Greeks have too many cars (more than 10) and cannot earn anything by driving them. Greece = bankrupted by its fuel waste.
What is underway in Greece (and elsewhere around the world) is a battle between car owners and their grandchildren. Right now the cars are winning and the grandchildren are consigned to the woodchippers. Oh well, this is how it goes, those grandchildren are all going to die anyway.
Greece is not Japan; the latter is an industrial powerhouse with its own currency and credit Greece is an agrarian vacation paradise with smuggling rings. It has its own currency — the euro — but refuses to act like it, the euro is treated as a gift from (banking) gods. Because Greece has its own currency it really controls its own destiny to some degree.
To the degree that it can buy some time and use it to wean itself from imported fuel supplies and learn how to live within its means.
If the Greeks can learn how to do that they can become leaders in the world to come … a world where everyone — Japanese, Chinese, Americans, Europeans, etc. — will have to learn the same thing.
Thanks to Hestia Benny for the Irish in the trenches report. We have a saying here in the US that you can’t get blood out of a turnip. Whether that turnip is Greece or Ireland or California, which has become a dust bowl in the Central Valley. Anybody with a brain is fleeing to the surrounding states, unfortunately they are bringing the same lunatic ideas that destroyed California with them. Talk about domino effect!