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Grexit Remains Most Likely Outcome For JPMorgan
On Wednesday evening, Greece took another step toward transforming itself into a vassal state of Brussels when lawmakers passed a second set of prior actions ahead of formal discussions around a third program for Athens. The vote itself was largely a formality, as the measures under consideration - which included EU rules on bank resolutions and civil justice reform - weren’t as contentious as those Tsipras crammed through parliament last Thursday.
Nevertheless, the vote was important as a litmus test for Syriza. Tsipras executed a cabinet reshuffle late last week after 39 members of his coalition failed to support the first set of bailout prior actions, and analysts were watching Wednesday’s vote closely to see if more Syriza MPs rebelled.
While the number of defectors fell, 31 still failed to support the measures, betraying a still-divided party heading into what are expected to be weeks-long negotiations between Athens and Brussels on the final terms of the third bailout. Here’s more color from BBC:
After another long debate, and plenty of angry exchanges, parliament approved the new reforms in the early hours of the morning.
More than 30 MPs from the governing coalition voted against the measures - but crucially for Alexis Tsipras the number of rebels was slightly lower than last week.
Mr Tsipras was defiant telling parliament that he didn't really approve of the deal that had been imposed upon him by the rest of the eurozone. But he stressed that it was the only way to keep Greece in the single currency.
Negotiations will now begin on approving the terms of a third bailout, with the aim of completing a deal by the middle of next month.
It's a tight timetable with scepticism on both sides. And Mr Tsipras still has to decide whether a successful conclusion of negotiations should be followed by early elections.
Yes, early elections, which MNI suggested will occur immediately following the implementation of the new program (Greek officials promptly denied this "rumor").
Whatever the case, Deutsche Bank is unquestionably correct that there’s something quite absurd about the adoption of the new bailout terms being left to a government whose leader openly opposes the deal. "The inherent contradiction of program implementation by a government from within which the bulk of opposition originates will have to be resolved," the bank said on Wednesday.
And Deutsche isn’t alone in their skepticism. Here’s JP Morgan on why no one "should put the odds of Greece staying in the euro above 50%".
From JP Morgan
Greek politics and an economy in flux
The path ahead looks long and difficult. The program is likely to impose a significant fiscal tightening on an economy which is already back in recession, is struggling with a dysfunctional banking system, and where confidence has suffered a big shock. It is tough to know how near-term downward pressure on activity will interact with Greek politics. For many Northern European countries the third program represents a "last chance" for Greek participation in the euro to be made viable. Hence, discussion likely will turn to euro exit immediately should the program fail to be agreed or implemented.
For now, we would not put the odds of Greece staying in the euro area above 50%.
Few in Syriza genuinely support the new program, and we would expect Syriza will seek every opportunity to renegotiate. Given doubts about implementation, the creditors are likely to be unusually prescriptive about the specific steps the Greek authorities are expected to take. The negotiations on the design of the program will be difficult. Prime Minister Tsipras has been forced to rely on support from opposition parties to pass the required legislation through the Greek parliament. However, he appears to have limited that loss of support to the hard-left of his own party. Meanwhile, polls suggest his personal approval rating remains high, and that new elections would see a Syriza administration returned if they were called now. Hence, there has been speculation that Prime Minister Tsipras could prompt snap elections, with his government standing down and preventing another one being formed. Though it is not clear whether that will occur, there is clearly potential for Greek political developments to complicate either the negotiations on the program design or its implementation. And if we do move toward new elections, it remains to be seen how Syriza will square its policy platform with the measures being demanded from the rest of the region for Greece to remain in the Euro.
The proposals from the Greek side prior to the July 5 referendum had suggested fiscal tightening amounting to more than 2% of GDP to be implemented immediately, with a further 1% of GDP to follow at the beginning of 2016. The VAT and pensions measures legislated thus far amount to near 0.5% of GDP. It will be important to see the extent to which the third program sees further fiscal tightening implemented in the near term. The extent of such tightening could be moderated by greater prioritization of privatization and structural reform. But the desire from the rest of the region to limit program financing needs, and an emphasis on more easily verifiable measures, is likely to mean hefty fiscal tightening in the near term. Indeed, the summit statement called for introducing "quasi-automatic spending cuts in the event of deviations from ambitious primary surplus targets."
Meanwhile, the capital controls regime will be an administrative challenge for the Greek government, as the need to pay for imports of food, fuel, medical supplies, and inputs for industry all compete with the need to keep capital outflows down. There are already reports of supply chain difficulties from this source, which add further downward pressure on activity. Although the recent summit saw the region avoid a Greek euro exit, the coming quarters are likely to be very difficult for the economy, and the mutual distrust between Greece and its creditors is likely to remain. Completing the negotiations on a third program and beginning to implement it may be enough to push the odds of Greece staying in the euro back above 50%. But until that occurs, and even after, we still see plenty of scope for conflict to re-emerge.
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Wait....What?...Greece Again?
No, same story. new paragraph
More BS...if they were going to leave they would have done it already.
Of course Tsipras is saying that he does not approve of the deal. He is simply trying to maintain a foot in both camps.
But, let's be clear that there could never be any favouravble deal for Greece. When your adversary knows you have no Plan B and knows that your leadership has no balls, it will in the end impose whatever it likes on Greece.
A socialist government implementing austerity,
coming soon to a country near you!
100% chance the teat suckling American paper pushers will continue to call Greeks lazy socialists as they continue to "earn" profits thanks to the generosity of the fed and the gubmint. Isn't it ironic, don't ya think?
For some reason Englebert Humperdink came to mind while reading this article.
https://www.youtube.com/watch?v=AZLqZ_H_nZc
string section very appropriate
Come on - Greece? That's so yesterday.
Greece isn't going anywhere. They're essentially a poor orphan that just got adopted by a very rich family.
But they're gonna be hating that 'tough love' that's gonna rain down on em.
That orphan is also gonna be keeping one eye on the door.
As if the slaves would ever be allowed to leave the plantation.