Tag Archives: Hellenic Parliament

Greek Debt is Out of Control, Report Says

According to the newly-formed State Budget Execution Monitoring Office in Athens – staffed by independent analysts – a significant increase of debt, a high primary deficit and the deep recession have boosted to the extreme the dynamics of  Greek debt – and it is now spinning out of control, they write in a report, quoted by the Greek news paper Kathimerini, Friday.

“What does the EU do with a country that is unwilling to undergo change and structural reform, because there is a lack of political will, of functioning administration and of support of the population?”

 Frankfurter Allgemeine Zeitung

The Greek economy is shrinking at an alarming rate, offsetting the impact of the first EUR 159 billion bailout loan, according to the reports. But Greek finance minister Evangelos Venizelos states that the report lacks validity of equivalent international reports. 

Venizelos last week admitted that Greece is likely to contract by more than 4.5% this year, worse than an earlier 3.5% forecast.

Meanwhile, Greece’s debt has ballooned to over EUR 350 billion.

The deficit has climbed to EUR 15,5 billion by July, compared to a target of EUR 16,68 billion for the entire year.

Greek deficit reached EUR 15,5 billion in July, at the same time the economy is contracting by 4.5%.

To make up for revenue shortfall, Greece raises VAT by 10 percentage points on food and restaurants.

Parts of state revenue included in this year’s calculations will not be collected until early 2012.

To make up the shortfall, the authorities on Thursday raised VAT for food at restaurants and hotels by ten points to 23%.

The restaurant sector has described the measure as ruinous and some operators have threatened to withhold the tax to avoid closing down altogether, www.eurointelligence.com reports.

Separately, the Greek Finance Ministry says it will publicize the names of taxpayers who has owed the state more than 150.000 euros for over a year, according to another article in the Greek news paper, Kathimerini.

“Greece is a Lost Cause”

After the Greek parliament’s admission that the Greek debt has spun out of control, Frankfurter Allgemeine Zeitung’s economics editor, Holger Steltzner,  urges the euro zone in a front page editorial to wake up to the fact that Greece is a lost cause.

“The public service and the private sector have ballooned as a consequence of living on debt and they are not competitive and that is why the ‘rescue billions’ will disappear”, Steltzner asserts.

“What does the EU do with a country that is unwilling to undergo change and structural reform, because there is a lack of political will, of functioning administration and of support of the population?” the German editor writes.

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Credits Rally Without Credibility

The CDS spreads tightened significantly, Tuesday, and the rally gained momentum through the afternoon as investors placed their bets on a Greek “yes” to more austerity measures. Banks also rallied in spite of rumors that as many as 15 institutions will fail the upcoming stress test.

“The markets are aware that the banking books aren’t being tested for sovereign defaults, leaving a sizable credibility deficit.

Gavan Nolan

Well, here at the Econotwist’s we are just as skeptical to this rally, as we are to the stress test. Even if the Greek should accept another round of crippling austerity, the market participants are still pricing an 80% chance of a national default. And the banks? Hahaha…suckers!

I guess most of you are familiar with terms like “suckers rally” and “pump&dump.”

However , I won’t stretch that any longer – we’ll just have to wait and see, okay.

Now; according to Markit Financial Information,  the so-called “French proposal” for private sector participation in Greece’s bailout appears to be gaining traction, with reports that the German banking association sees the French model as a potential solution.

Fitch Ratings have declared that the proposal would still be regarded as a default by the agency but  the market didn’t seem to give a damn.

The Greek parliament have been debating the austerity bill while the country is paralyzed by a two-day general strike and protesters are raging in the streets of Athens.

Inevitably, the protests have turned violent again and ought to serve as a reminder that the government will find it difficult to implement these measures,  even if they get the votes they need tomorrow and Thursday.

“Nonetheless, the markets were content to ignore the unrest and rally,” credit analyst Gavan Nolan at Markit Credit Research writes in his Intraday Alert.

Adding: “Participants might be looking to add risk ahead of the vote in expectation of a relief rally if the government wins.”

The Markit iTraxx SovX Western Europe index was about 9 bp’s tighter, at 233,5 basis points, driven by the peripheral EU countries.

Spreads in Spain – perhaps the most important gauge of contagion – tightened significantly,  and closed at 288 bp’s.

Italy also rallied. The sovereign sold EUR7,885 billion of government bonds this morning, close to the upper end of the target range.

“Demand for the debt was solid and higher than the previous auctions, though the 1.32 bid-to-cover ratio for the 10-year BTP was relatively weak,” Gavan Nolan points out.

The tightening in the peripherals seemed to fuel a broader market rally.

The Markit iTraxx Europe closed about 2,5 bp’s tighter, at 113,25, and it was companies based in the EU periphery that drove the rally, like Gas Natural and  Telecom Italia.

A considerable skew has opened up in the index in recent days, the largest since the roll in March, according to Markit.

“The history of the index suggests that this will narrow relatively quickly,” Mr. Nolan writes.

That means that the iTraxx Europe most likely will widen again over the next days.

In another seemingly outburst of irrational exuberance banks also rallied, in spite of news reports claiming that between 10 and 15 of the 91 institutions who are subject to the stress tests are set to fail.

“If true, it could give the tests some much-needed credibility,” Nolan writes.

“But the markets are aware that the banking books aren’t being tested for sovereign defaults, leaving a sizable credibility deficit,” the Markit analyst concludes.

And that’s a nice and polite way of putting it.

  • Markit iTraxx Europe S15 113.25bp (-2.5), Markit iTraxx Crossover S15 425bp (-10)
  • Markit iTraxx SovX Western Europe S5 233bp (-9.5)
  • Markit iTraxx Senior Financials S15 175bp (-4.5)
  • Markit iTraxx Subordinated Financials S15 298bp (-10)
  • Sovereigns – Greece 2025bp (-40), Spain 288bp (-18), Portugal 795bp (-24), Italy 191bp (-14), Ireland 775bp (-38)

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EU to Greece: No More Solidarity If You Vote No

On the eve of perhaps the most significant vote in the Greek parliament since the return of democracy to the country in 1974, the European Commission has warned Greek deputies that if they do not vote the right way, then “everything changes” as to whether “EU solidarity continues”.

“The only way to avoid immediate default is for parliament to endorse the revised economic programme.”

Olli Rehn

The Greek parliament opened debate on Tuesday on a draconian package of public spending cuts, structural reforms and a massive €50 billion sell-off of state assets imposed by international lenders. The Greek parliament is due to vote on the mid-term package on Wednesday and hold a second vote on its implementation on Thursday.

In a stern public statement issued the same day, EU economics commissioner Olli Rehn said there are only two options for the country: pass the mid-term package or default, the EUobserver.com reports.

“The only way to avoid immediate default is for parliament to endorse the revised economic programme,” he writes in a communique to reporters, read  by his spokesman, Amadeu Altafaj-Tardio.

“To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default.”

In recent weeks, a range of commentators, including mainstream and heterodox economists have recommended a range of other paths out of the crisis than those on the table.

The EU executive however dismissed such ideas as unrealistic.

“According to press reports over the last hours, there seems to be an illusion that there will be other plans on our desk,” Altafaj-Tardio says.

“This should be clear in all journalists, politicians and markets’ minds.”

Pressed whether the commissioner’s words meant that if the vote is defeated, Greece will be allowed to go bankrupt, the spokesman said: “If Greece does everything to take the objectives set a year ago, then EU solidarity continues. If not, then of course everything changes.”

He refuse to answer whether a country can default and still be a member of the eurozone.

“We are not putting ourselves in a scenario without Greece at this point in time,” he says.

However, a euro zone source close to talks on the subject confirmed toEUobserver that there are indeed “half-formed” ideas about emergency measures to take in the event that the Greek parliament votes down the measures.

“It would be extremely irresponsible if there were no Plan B. There have been discussions on what to do, a contingency plan in the event that Greece doesn’t vote the right way,” the source says.

Ideas include a show of public support, possibly with the European Financial Stability Fund directly purchasing Greek government debt – an option that has until now been forbidden.

One idea would involve allowing Greece to miss a payment and the EFSF then swooping in and buying up debt at a significantly discounted rate, but with very strict conditions, according to the EUobserver.com.

Another possibility is that Greece could return to the private sector for funding, although such a move would entail borrowing at acutely high rates.

A market analyst speaking to this website also confirmed that in theory, there is nothing preventing Athens from selling debt to private creditors, at least for a short period.

“In the event of a failed vote, Greece could still make the repayments due in July and August by borrowing in the short-term money market, albeit at a very steep interest rate,” Sony Kapoor, the director of international economic think-tank Re-Define, says.

“This would buy two more months of negotiation time.”

In the same statement, the commissioner again told opposition forces to drop their resistance to the mid-term package and forge “the necessary political consensus”.

Read the full post at EUobserver.com.

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