{"id":15378,"date":"2017-05-19T17:30:00","date_gmt":"2017-05-19T14:30:00","guid":{"rendered":"http:\/\/bestinsurance.gr\/a1\/?p=15378"},"modified":"2017-05-19T17:35:43","modified_gmt":"2017-05-19T14:35:43","slug":"greece-just-default","status":"publish","type":"post","link":"https:\/\/bestinsurance.gr\/a1\/archives\/15378","title":{"rendered":"Is Greece just about to default?"},"content":{"rendered":"

Is Greece just about to default?.Who could think so? Greek government bonds have been on a tear<\/a> for a year; staff-level agreement on policies has been reached and, behind double-digits in polls, Syriza MPs are set to swallow the lot this week; so the \u20ac7bn July maturities look good.<\/p>\n

<\/div>\n

So, what fly, what ointment?<\/p>\n

Debt reduction<\/strong>.<\/p>\n

Markets presume that Lagarde and Merkel will fudge their differences on this again.<\/p>\n

There is much scope for doing so. Virtually anything could meet Lagarde\u2019s demand that creditors provide \u201cappropriate<\/a>\u201d debt relief \u2014 with the size of the IMF financial contribution adjusting to the size and formulation of reduction as it \u201cstays in\u201d. If gaps on that prove un-bridgable, further fudges could be found in the strength of the IMF Board\u2019s endorsement for the content of the program, even as the IMF \u201cpulls out\u201d, to help Merkel get the program disbursements through the Bundestag \u201csans IMF\u201d.<\/p>\n

And in the back of the markets\u2019 mind is that, back in 2015, Tsipras huffed and puffed and blew his own house down, so \u2026 buy!<\/p>\n

But this time really is different.<\/p>\n

For the sake of exposition, assume that Lagarde recommends that the IMF stays out and wins Board support for that, with Greece fully program-conditionality-compliant, and with the Troika of inspectors saying so.<\/p>\n

Well, since mid-2015, Tsipras has done as he was told for one reason alone: to secure big debt relief. So he now has every reason to pick a fight on this issue.<\/p>\n

If he, conditionality-compliant, were now to default in protest at Merkel\u2019s \u201csometime later, perhaps\u201d, he could do so while affirming, with IMF endorsement, that his sole purpose in doing so is to eliminate risk of Greece ever leaving the Euro.<\/strong><\/p>\n

That would put the ECB in a completely different position from 2015. Then, whether one agreed or not<\/a>, it justified capping ELA on grounds of Greece\u2019s conditionality non-compliance and devaluation risk. But in this context, its only grounds for capping ELA would be in support of Mrs Merkel\u2019s reluctance to deliver full debt reduction now \u2014 in the face of formal IMF assertion that it is essential, now. The ECB would thus \u2018out\u2019 itself as the political vehicle it is. Perhaps this conundrum explains Draghi\u2019s recent unprecedented outburst on debt relief<\/a>.<\/p>\n

And, with default motivated by securing Greece\u2019s euro membership, this line itself may contain risk of bank deposit flight, thereby diminishing need for ELA in default.<\/p>\n

Further, to Tsipras\u2019 (and others\u2019) surprise, Greece now runs a big primary surplus \u2014 over 3 percent of GDP in 2016, up from balance in 2015, and still running strong into 2017, even if some of it reflects temporary factors. Sure enough, that scorching fiscal withdrawal is accompanied by output declines, yet again<\/a>. But in that context, Tsipras doesn\u2019t need new finance for the budget as is if deposit flight is contained or if ELA is uncapped. Only if deposits flee and ELA is capped will Greece spiral. But thereby the Euro pandora\u2019s box of ECB legitimacy will bust wide open. If Tsipras is ever going to stand and fight on debt reduction \u2014 i.e., default \u2014 now is the time.<\/p>\n

Merkel, likewise, faced with this prospect, also has good reason to pick a fight on Greek debt reduction now.<\/p>\n

Glad as she may be that Mme Le Pen has been dispatched, at least for now, Merkel\u2019s immediate task, faced with \u201cSaint Emmanuel\u201d, is to reassure her voters that she\u2019s not going to go soft, not for him, nor the Brits, nor the Italians, and so certainly not for Tsipras. Given the resurgent SPD since Schultz, her key concern ahead of Fall elections is risk of loss of votes to her right. So a flat-out fight with the IMF and Tsipras over debt reduction, with an insistence on the German version of ECB \u201corthodoxy\u201d on ELA, all under the rubric of \u201cEuropean rules\u201d, has big political attractions.<\/p>\n

If that is how things play out in the event of the IMF \u201cstaying out\u201d \u2014 notably the exposed position it puts the ECB in \u2014 consider the IMF\u2019s incentives to do so.<\/p>\n

The staff and management\u2019s primary concern is to rescue their battered reputations over the institution\u2019s entire engagement with Europe since the euro\u2019s establishment:welcoming all the factors that led to crisis<\/a>; multiple failings on Greece during the crisis<\/a>; and all-European Managing Directors despite personal scandal surrounding all since Camdesssus, including Lagarde\u2019s conviction for negligence.<\/p>\n

So, to put it mildly, they are keen to rescue themselves by making an ostentatious splash on Greek debt now. And the rush to secure Greek disbursement on the eve of Brexit, contrasted with no equivalent ahead of the French first round signals\u2014 rightly or wrongly \u2014 that IMF staff and management (and Merkel) no longer see Greece as Euro-systemic.<\/p>\n

But the IMF, despite appearances and reporting, is not its staff and management: it is its Board.<\/p>\n

The Europeans there, including the Brexit Brits, will almost certainly, as usual, vote as a block \u2014 formally backing Merkel against the IMF staying out on the grounds of debt reduction, even if \u201cSt. Macron\u201d has to swallow hard on this.<\/p>\n

So the determinant voice on the IMF Board position will be the US. That means Trump.<\/p>\n

The tea-leaves there? Market confidence that his Goldman-Sachs alums will prevail remains undaunted by everything, even Comey. But as with all gross objects, all the signs are, to the contrary, that he bends space and time around him, as Einstein said, not vice-versa.<\/p>\n

So, how does Lagarde\u2019s \u201cIMF-out\u201d call play at the 18th hole at Mar-a-Lago:<\/p>\n

\u2022 Pro IMF out (Bannon): far-away Greece hits back at the Queen of trade surpluses; Greece overspends NATO, Germany underspends; we remind Europeans that the US is boss; debt reduction is our home (business) turf; all under the guise of \u201cwe\u2019re supporting the responsible IMF sustainability assessment<\/a>\u201c. No $ impact.<\/p>\n

\u2022 Con IMF out (GS-alums): Lagarde openly opposed us in the election, accuses us of protectionism and financial-regulatory skulduggery; she can always draw her line on Greek debt somewhere else; our Euro and Federal Reserve pals, fearful of the implications for ECB, are bigly con out; Euro crisis hurts exports via the US$.<\/p>\n

If you know which way this goes \u2014 or perhaps are betting that Jared and Ivanka can find their feet in all this \u2014 you\u2019re a better tea-leaf reader than I am. But markets on Greece are currently overwhelmingly backing the GS-alums at the Mar-a-Lago 18th.<\/p>\n

So what does it take to produce a Greek default in the coming months?<\/p>\n

\u2022 Merkel concedes only tokens on Greek debt reduction<\/p>\n

\u2022 Lagarde decides she cannot defend them to her coterie of apologists<\/p>\n

\u2022 Trump (on the day) decides to showboat and poke Merkel in the eye<\/p>\n

\u2022 Tsipras seizes the day.<\/p>\n

Lagarde\u2019s backbone may be the weakest link in this chain. But, faced with abandonment by her coterie of commentariat apologists and the shattering of her global reputation if she folds now, even someone as skeptical of her as I am<\/a> says her back could prove surprisingly stiff.<\/p>\n

And crazy as creditors\u2019 conditionality may be<\/a>, full compliance by Tsipras could be exactly what now sets the Greek cat among the Euro and IMF pigeons.<\/p>\n

Source:link<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Is Greece just about to default?.Who could think so? Greek government bonds have been on a tear for a year; staff-level agreement on policies has been reached and, behind double-digits in polls, Syriza MPs are set to swallow the lot this week; so the \u20ac7bn July maturities look good. So, what fly, what ointment? Debt<\/p>\n","protected":false},"author":1,"featured_media":13422,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-15378","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-1"],"jetpack_publicize_connections":[],"_links":{"self":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/15378","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/comments?post=15378"}],"version-history":[{"count":1,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/15378\/revisions"}],"predecessor-version":[{"id":15379,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/15378\/revisions\/15379"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/media\/13422"}],"wp:attachment":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/media?parent=15378"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/categories?post=15378"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/tags?post=15378"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}