"Lehman Weekend" Looms For Greece As Europe Readies "Emergency" Sunday Meeting

Last week, Greek PM Alexis Tsipras submitted two three-page proposals that were ostensibly designed to close the gap with creditors. EU officials were incredulous, calling the drafts “not serious.”

Tsipras had effectively resubmitted Greece’s previous proposal (i.e. a proposal that did not include concessions on a VAT hike or pension cuts) only this time, he included a second document that outlined how Athens hoped to tap leftover bank recap funds from the EFSF and bailout money from the ESM. Greece took that same proposal to Brussels over the weekend and it didn’t fly there either, leaving Europe to wonder just how far Tsipras was willing to go with the brinksmanship.

The problem is simple and it’s been outlined in these pages extensively. The game of chicken can theoretically go on at the political level for some time. That’s because the bundled IMF payment isn’t due for another two weeks and even if it were missed, Christine Lagarde has quite a bit of discretion as it relates to sending an official failure to pay notice to the IMF board and triggering cross acceleration rights for Greece’s other creditors. In other words, a formal default is a matter of politics and it can be put off for at least 30 days past the end of this month.

What cannot be controlled at the political level is what happens on the ground in Greece. That is, the economy is bleeding jobs and businesses and the banking sector is hemorrhaging hundreds of millions of euros every day. If suppliers cut off credit to the Greek economy and deposit flight turns into a panicked bank run, the glacial pace of political logrolling will prove hopelessly inadequate to contain the situation, meaning the country could descend into chaos while both sides watch in horror from the negotiating table in Brussels. Yesterday, Germany's EU Commissioner Guenther Oettinger warned of exactly this and suggested that Europe plan for a “state of emergency” in Greece. 

And plan they did. Midway through US trading on Monday the German press reported that Europe was prepared to implement capital controls over the weekend should Greece fail to table a workable proposal at a meeting of EU finance ministers in Luxembourg on Thursday. We’ve outlined what capital controls could look like in Greece on a number of occasions (most notably here and here), but for those needing a quick reference, consider the following flowchart:

Here’s Open Europe summarizing the drama:

German daily Süddeutsche Zeitung reports that Eurozone countries have agreed on a contingency plan if no deal between Greece and its lenders is struck by this weekend. According to the paper, if this week’s Eurogroup meeting failed to yield an agreement, Eurozone leaders would hold an emergency summit – potentially as early as Friday evening. The contingency plan would involve imposing capital controls on Greek banks over the weekend.

As for the Eurogroup meeting and the rumored emergency summit, Greece contends it will not be submitting a new proposal and some EU officials are skeptical about the utility of holding a summit if no progress is made in Luxembourg. FT has more:

Eurozone officials are discussing holding an emergency summit on Sunday for leaders to tackle the crisis in Greece amid mounting fears a deal to break an ongoing impasse between Athens and its bailout creditors will not be reached at a high-stakes finance ministers meeting on Thursday.

According to two senior officials, the idea of holding a summit of eurozone heads of government was mooted in meetings among representatives of Greece’s creditors on Monday, a day after last-ditch negotiations to reach a deal to release €7.2bn in much-needed bailout aid collapsed.

They said that although the idea was discussed, there is considerable resistance to convening the summit among several creditors since technocratic issues like Greek pension reforms and tax rates are not normally the province of EU presidents and prime ministers.

“If there’s nothing to discuss among finance ministers, there wouldn’t be anything to discuss among heads,” said one official from a Greek creditor institution.

Yanis Varoufakis, Greece’s finance minister, said the country has no plans to present new proposals at the finance ministers meeting, signalling the country won’t make further concessions to unlock bailout funds needed to avoid default.

He told Germany’s Bild newspaper: “The eurogroup is not the forum for presenting positions and plans which have not previously been discussed and negotiated at a lower negotiating level.”

“The next and hopefully decisive step is the eurogroup [on] Thursday,” said the spokesman, Preben Aamann. “Any further steps will be decided in light of the eurogroup outcome. There should be no illusions that an agreement becomes easier or more advantageous over time.”

Alexis Tsipras, the Greek prime minister, has publicly insisted that he will not be presenting any new compromise proposals at the Thursday meeting, and officials said the discussion at the eurogroup of finance ministers on Greece could end up being perfunctory as a result.

In addition, some officials believe Athens’ decision to send Mr Varoufakis, the combative finance minister, to the eurogroup session could preclude a deal being worked on Thursday

Recall that the last time Varoufakis attended a meeting of EU finance ministers, he ended up eating dinner alone in Riga and tweeting out FDR quotes after his antics at the negotiating table prompted EU officials to phone Tsipras and plead with the PM to sideline his FinMin or risk throwing the entire process into disarray. Varoufakis was soon demoted on the negotiating team.

All signs thus point to the imposition of capital controls, setting up a potential "Lehman Weekend 2.0" unless all sides suddenly realize what they've wrought, convene an emergency meeting among heads of state, and strike some manner of hastily construed stopgap agreement. Whether or not that's feasible remains to be seen and it appears as though Sunday may be the day of reckoning.

For now, the official line is that Europe will only restart talks if Greece "submits something new", and if the last several weeks are any indication, "something new" is not forthcoming. 

Finally, Bild is reporting that Greece will seek to delay its June 30 IMF payment by six months.

Via Bloomberg, citing Bild:

The Greek government is seeking to delay a 1.55b euro payment to the IMF by six months. 

Greece has found technical option to delay IMF payment due at the end of June.

And because this is Europe, the Greek government has promptly denied the above:

• GREEK GOVT OFFICIAL DENIES REPORTS SEEKING TO DELAY IMF PAYMENT

Comments

[dogbert777]

Screwed joint and several.....Monetize all debt,   coming to a country near you!  Omnes viae Romam ducunt!  Relax and enjoy the show...Mutti Merkel may yet wet her panties  before this is over.....

[dogbert777]

Screwed joint and several.....Monetize all debt,   coming to a country near you!  Omnes viae Romam ducunt!  Relax and enjoy the show...Mutti Merkel may yet wet her panties  before this is over.....

[Basia]

Busy week ..............

Tsipras meets with Putin on Friday in St. Petersburg 6/19/15

http://greece.greekreporter.com/2015/06/16/tsipras-putin-meeting-on-frid...

[OhNo]

Financial collapse in two weeks, Econominic collapse July, Aug, Sept,. World War 3, Oct, Nov, Dec A Qaurter of the population dead. Ceasfire around the Dec and Jan As the sighting of planet 7X will stop the world. Planet 7X sighting to arrival Dec to march the 23rd. Prepare to live or die as once this starts it wont fuckin stop.

[q99x2]

Print everybody just F'n print and everything is going to be ok.

[polo007]

According to the International Monetary Fund:

http://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf

Causes and Consequences of Income Inequality: A Global Perspective

EXECUTIVE SUMMARY

We should measure the health of our society not at its apex, but at its base.” Andrew Jackson

Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCsf), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. Not surprisingly then, the extent of inequality, its drivers, and what to do about it have become some of the most hotly debated issues by policymakers and researchers alike. Against this background, the objective of this paper is two-fold.

First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.

Second, we investigate what explains the divergent trends in inequality developments across advanced economies and EMDCs, with a particular focus on the poor and the middle class. While most existing studies have focused on advanced countries and looked at the drivers of the Gini coefficient and the income of the rich, this study explores a more diverse group of countries and pays particular attention to the income shares of the poor and the middle class—the main engines of growth. Our analysis suggests that

- Technological progress and the resulting rise in the skill premium (positives for growth and productivity) and the decline of some labor market institutions have contributed to inequality in both advanced economies and EMDCs. Globalization has played a smaller but reinforcing role. Interestingly, we find that rising skill premium is associated with widening income disparities in advanced countries, while financial deepening is associated with rising inequality in EMDCs, suggesting scope for policies that promote financial inclusion.

- Policies that focus on the poor and the middle class can mitigate inequality. Irrespective of the level of economic development, better access to education and health care and well-targeted social policies, while ensuring that labor market institutions do not excessively penalize the poor, can help raise the income share for the poor and the middle class.

- There is no one-size-fits-all approach to tackling inequality. The nature of appropriate policies depends on the underlying drivers and country-specific policy and institutional settings. In advanced economies, policies should focus on reforms to increase human capital and skills, coupled with making tax systems more progressive. In EMDCs, ensuring financial deepening is accompanied with greater financial inclusion and creating incentives for lowering informality would be important. More generally, complementarities between growth and income equality objectives suggest that policies aimed at raising average living standards can also influence the distribution of income and ensure a more inclusive prosperity.

[hedgiex]

Smart monies not at the core are hedged or already out. Weekend meetings will have the agenda slimmed down to the essentials on keeping the promises to smart monies at the core and are staying.

Screw the markets, we can call whatever turmoil "unintended consequences". Traders who are in the fringes are lusting for whatever the Bureaucrats may do/say and game the new spins that are meant for muppets.