When it comes to the markets one can easily ignore the fact that the world is one big ponzi and things, as we know them, are coming to an end as long as the can can be kicked down the street at least one more time. In other words, without a hard deadline, there is nothing that can force change upon a system already in motion, no matter how self-destructive. Unfortunately, the clock in Europe is ticking as a deadline approaches, and somewhat poetically, the place where it all started is where it may end. In March Greece faces a redemption cliff: if by then the €130 billion promised to it by the Troika as per the July 21 second bailout, is not delivered, it is game over - first for Greece which will default, then for the ECB, which will be forced to write down holdings of Greek bonds, in effect wiping out its equity and credibility, and lastly, for the Euro, which will see a core member leaving (in)voluntarily.
As the WSJ reported today [8], "Greece faces the risk of a disorderly default in March if it doesn't complete negotiations for the country's second bailout starting later this month, Prime Minister Lucas Papademos said Wednesday." The problem is that "the stakes are rising as Greece pushes the sensitive issue of reducing private-sector salaries, under pressure from creditors to quicken reforms. Private-sector labor union GSEE said the government has instructed them to start discussions with employers on ways to reduce costs. GSEE General Secretary Nikolaos Kioutsikos said the talks will run until the start of February and cover lowering the minimum salary and reducing annual pay by up two months. As Papademos told us, there are no barriers to these cuts," he told reporters. GSEE rejects any talk of pay cuts and will propose ways to lower other costs and protect jobs." In other words, the dormant Syntagma riot cam will very likely see serious action quite soon, only this time there is no can kicking, something which G-Pap knows too well, and is why he formally resigned from politics earlier today. So while the market drifts ever higher of some blissful "decoupling" from something, here is SocGen with the key events for Europe's Patient Zero, which is almost guaranteed to not be a part of the Eurozone by the end of the year.
Greece: to leave or not to leave? Key dates ahead
We have said for some time now that should any country leave the eurozone, it would be a political decision. This is still true. However, Greece faces a crucial agenda over the coming weeks with key dates that could tip the scales.
Troika to visit Athens on 16 January. The Troika will make yet another trip to Athens mid-January to start new negotiations on the new funding programme and to review the economic and fiscal situation. It may reiterate that Greece has to speed up its efforts to implement its austerity programme, keeping the pressure on the Greek government. However, should discussions surrounding PSI continue, the Troika is quite unlikely to veto further aid to Greece.
PSI agreement by the end of January. First, Greece and the IIF said they must reach an agreement on PSI by the end of the month. The IIF has been quite optimistic over the past few days, saying that progress has been made. However, no agreement has yet been reached. It must be based on the terms of the 26/27 October EU Summit, which means a 50% haircut on a voluntary basis. This is supposed to reduce public debt by EUR100bn. Greece would like a bigger haircut, especially as the country is sinking deeper into recession and the economic outlook is not bright. However, a bigger haircut seems quite unlikely at this point.
Big redemptions by the end of March. An agreement over PSI is a key condition for the EU/IMF to deliver the EUR110bn promised in July and confirmed in October. Greece will need this package if it wants to meet its first large GGB redemption of 2012 at the end of March.
Greek elections in April. Lastly the Greeks will go to the polls in April, a tough test for the Greek government against the backdrop of social pressure and as Greece slips deeper into recession. PM Papademos will have to convince the Greeks that current austerity measures, and perhaps more ahead, are necessary for a brighter outlook at the end of the day...
All in all, much like the past two years for Greece, 2012 has shot off at top speed and it will have to clear all the key event hurdles if it wants to remain a eurozone member. The Greek PM clearly envisages a pessimistic scenario: let’s hope this is meant to keep up the pressure and force key decision-makers to take concrete measures as well as implement them.
For now, market participants remain in a wait-and-see stance: 2Y and 10Y GGB yields are trading slightly off recent record levels of 156% and 36%, respectively, (currently at 134% and 34.88%, respectively). A 50% haircut has now been largely priced-in. However, Greece is still not immune to a more severe scenario.
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