Things for Europe (and liquidity addicts around the globe) just got a little more complicated. Earlier today, moments after the failed Greek presidential vote pulled the forgotten topic of a Grexit up front and center, the IMF announced that it is suspending financial aid to Greece under its huge rescue program until a new government is formed. RTE quotes IMF spokesperson Gerry Rice who said discussion on the completion of the sixth review of Greece's bailout will resume once a new government is in place. Mr Rice added that the holdup in the program would not impact the country's finances in the short term.
According to RTE [11], German Finance Minister Wolfgang Schaeuble said Greece must stick to agreed economic reforms regardless of the outcome of the election. In a statement, Mr Shaeuble said "these tough reforms are bearing fruit, they have no alternative."
And while the symbiotic relationship between Greece and Europe has been well-known for a long time, with Europe pretending to fund Greece (when it was just paying the interest and maturities on Greek debt held by official European entities), and Greece pretending to reform (when it was really just resting), the charade has now been put on indefinite hiatus:
A negotiating team from the "troika" of creditors from the EU, IMF and European Central Bank, had been due to resume talks in Athens next month to wind up the €240 billion bailout and agree an interim, post-bailout programme.
In a bid to reassure international partners, Syriza leader Alexis Tsipras has sounded a more moderate tone recently, promising to keep Greece in the euro and negotiate an end to the bailout agreement rather than scrap it unilaterally.
But he has stuck to his promise to reverse many of the tough austerity measures imposed during the crisis, reversing cuts to the minimum wage, freezing state layoffs and halting the sale of state assets.
There are two reasons why this is an issue: first, as we reported back in October [12], according to S&P absent substantial external capital inflows, Greece will be in default within 15 months. Actually make that 12 months now:
S&P estimates Greek financing needs for the next 15 months to be at EU43 billion. ... S&P estimates Greece will draw EU5 billion from intl bond sales, EU20 billion from internal mkt, EU12 billion from official lenders inluding the IMF in next 15 mos. S&P also forecasts Greece will repay EU3 billion in bonds held by investors who refused to participate in 2012 debt writedown, and if it doesn't then Greece will following Argentina in being held in "contempt to court" fo cramming down foreign law covenants.
The second reason is far more serious for the market permabulls everywhere, because in a world in which all the upside is due to central-bank driven multiple expansion, suddenly the ECB's QE which everyone is convinced will take place in Q1, has been put on hiatus as there is no way the ECB can commit to monetizing Greek debt at a time when the IMF may halt the check kiting scheme, whereby IMF funds the ECB using Greece as a pass-thru. What's worse: even the mere threat of a debt moratorium by Tispras whose prime ministerial campaign will be based on a platform of ending austerity and renegotiating the Greek bailout, means Draghi's hands are tied as the Bundesbank will declare check and mate on the Goldman apparatchik at the ECB should he engage QE only to see Greece exit the Eurozone and crush the ECB's monetization scheme when Europe is not a true federalized entity.
In any event, while the algos simply refuse to accept reality, or their math PhD programmers are just too dumb to grasp what happened today, things in early 2015 are already shaping up quite volatile. And perhaps most important, the Syntagma riot-cam, which has been in storage for the past two years, may finally make a come back.
