As a refresher, here’s the latest on Greece. Greek PM Alexis Tsipras is scrambling to “reshuffle [7]” his negotiating team after embattled FinMin Yanis Varoufakis’ “lecturing” finally pushed EU officials over the edge in Riga last Friday. A government decree to sweep excess cash reserves from local municipalities has unsurprisingly proven to be quite controversial, leaving the government short some €400 million [8] for pensions and salaries. Athens is still playing the Russia/Gazprom pivot card in a pitiable effort to demonstrate that Greece still has one last trick up its negotiating sleeve, and anarchists are attacking [9] Varoufakis at dinner. You can’t make this stuff up.
In the midst of this, the Greek banking sector continues to bleed cash as the latest data from the ECB shows deposits fell by another €2.5 billion in March, bringing the total to €27 billion (or around half a month’s worth of PSPP purchases) since December. Here’s more via Goldman:
The ECB released the March deposit data today (April 29), which paints a solid deposit picture across all markets, with the exception of Greece. Here, deposit outflows continued and reached €2.5 bn in March, driven by the decline in retail (-2%), public sector/other balances (-5%).
And of course more ELA means more deposit flight…
Between December and March, the Greek banks have lost €27 bn of deposits, a 16% decline. During this period, the stock of corporate deposits is down 29%, retail 13% and other 14%. The hike in the Emergency Liquidity Assistance (ELA) limit by a further €5.6 bn in April implies that outflows may have re-accelerated in recent weeks.
Without market access, the ECB remains Greek banks’ sole refinancing avenue. Greek usage of ECB facilities has increased by >€60 bn over the past four months. The Greek banking system – representing 1.2% of Euro area assets – now accounts for 18% of total ECB facility usage. 27% of all Greek bank assets are now ECB-funded.
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As for what happens next, projections abound with most commentators predicting some iteration of Citi’s “Grimbo [12]” scenario involving capital controls, defaults, and a kind of slow motion economic collapse which may (or may not) shock both Greece and its creditors into action. For their part, Deutsche Bank sees a 50% chance of a national referendum following a “reluctant” agreement with creditors. Of course, there’s still a one in three chance of ELA suspension and all of the rather unpalatable things that come with it. Here’s more:
After the first few weeks' honeymoon period, the electorate is turning more cautious on the administration's negotiating strategy, reflected in declining approval ratings for both the government and PM Tsipras himself. Most significantly, even as tensions rise, polls show continued and overwhelming public support for a European solution: between "rupture" or "agreement", opinion polls consistently point to more than 70% support for the latter…
PM Tsipras gave a wide-ranging interview to a Greek TV news channel. The deadlock in terms of sticking points was confirmed, yet the PM's statements on the government's negotiating strategy were more important. When asked on the way forward if an agreement violating electoral promises is required, the Prime Minister signaled that a referendum would be his preferred route, ruling out a general election…
A referendum now looks as the most likely outcome (reflecting the current scenario, we would see an indicative 50% probability): the government would reach a "reluctant agreement" with Europe followed by a national referendum for popular approval...
Most importantly, ongoing delays in negotiations and/or an accidental default, insufficient time to hold a referendum/change government, or an active decision to reject an agreement would likely lead to a suspension of ECB financing of Greek banks (30% probability). On this front, Draghi has recently signaled that a change in the haircuts of collateral submitted to ELA financing is possible, with a decision as soon as the May 8th ECB meeting…
Assuming the above is the case, the ultimate cut-off point for an agreement will still be defined by the time when the Greek government exhausts its cash position: any disbursement from creditors will materialize only after a full-staff level agreement and approval through parliament of a number of agreed prior actions. Liquidity in the meantime continues to drain, with the government legislating a forcible deposit of municipal/regional government excess liquidity into a central bank account last week, and similar legislation for pension funds possible. There are conflicting reports on whether enough cash is available to service the May 12th payment to the IMF.
Meanwhile, on the ground in Greece:
- GPO POLL SHOWS 61.9% OF GREEKS OPPOSE REFERENDUM ON AGREEMENT
Apparently then, Greeks oppose austerity, oppose leaving the euro, and oppose a refrendum on staying.
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For good measure, here's a look at Grexit risk over time as measured be Sentix's Euro breakup index:
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