On Wednesday, Greek PM Alexis Tsipras posted a statement on his official government website that contained the following passage:
I am optimistic that we will soon have positive results. We all, however, need to turn a deaf ear to those spreading doom, the alarmists. There is absolutely no danger to salaries and pensions or to the banks and people’s savings. And I believe that very soon we will be able to look ahead with greater optimism. However, we need composure and determination in this final stretch.
We would eventually learn that Tsipras had in fact been prompted [7] by aides to say something — anything — to avert a bank run because according to some reports, €300 million in deposits were withdrawn on Tuesday alone after Yanis Varoufakis suggested the country may consider a levy on ATM visits in order to encourage Greeks to rely on their credit cards.
Today, we got the latest read on the Greek banking sector and, sure enough, deposits fell by another €5 billion and now stand at just €133.7 billion, the lowest level since September of 2004. Greek banks have now lost €32 billion in deposits since November and are losing another €167 million every day, on average. As a reminder, Greek banks are relying on ELA to stay solvent and a missed IMF payment risks a showdown with the ECB which could decide to effectively break the banks overnight if it raises haircuts on ELA collateral or continues to refuse to lift the ELA ceiling. Here's the situation visually:
[8]
Meanwhile, G-7 officials meeting in Dresden have given the market little reason to buy into Greece’s upbeat rhetoric.
Via Bloomberg [9]:
The Greek administration saw its optimism about a deal rebuffed as European policy makers gathered in the German city of Dresden for a Group of Seven meeting. While Greece isn’t on the formal agenda, it has dominated public comments after the country’s officials claimed an accord can be reached by Sunday.
Bailout talks “are progressing faster but not yet fast enough to conclude,” French Finance Minister Michel Sapin said in an interview with Bloomberg at the G-7. “The red line is that there cannot be a deterioration of the overall budget situation, and in fact there needs to be an improvement.”
And, as expected, the IMF is sticking to its pension reform and debt writedown stance…
The IMF won’t support an accord unless Greece commits to a credible medium-term primary budget surplus and changes to its pension system, said a separate official involved in the G-7 talks. Greece and its international creditors remain far apart, said the official, who spoke to reporters on condition of anonymity because the discussions are confidential.
While Tsipras must make binding commitments, euro-area countries may also need to offer debt relief as part of any solution, the official said.
“I would not say that we have achieved results, that we are close to the end of the process,” IMF Managing Director Christine Lagarde said on Thursday in a television interview with ARD from Dresden. “There is still a lot of work to be done.”
...while German FinMin Wolfgang Schaeuble rather dryly notes that despite calls from European economic commissioner Pierre Moscovici to “work day and night” for a deal, no one spent too much time on the issue...
- SCHAEUBLE: GREECE TALKS AT G-7 ONLY TOOK `A FEW MINUTES
It’s easy to understand why the IMF is concerned about participating in a third program for Greece or indeed even disbursing its portion of the €7.2 billion in aid still ‘owed’ to Greece under a previous bailout. The economic situation simply isn’t improving, meaning creditors are throwing money into a black hole. This point was reinforced on Friday when the latest GDP print out of Athens showed that the country is now officially back in a recession.
Greece’s economy shrank 0.2% in 1Q from 4Q 2014, when it contracted 0.4%, according to e-mailed statement from Eurostat.
This makes the following soundbite from Varoufakis seem rather ironic:
- VAROUFAKIS SAYS GREECE WILL NOT ACCEPT RECESSIONARY MEASURES
Greece faces IMF payments of more than €1.5bn between 5 and 12 June, and our euro area team thinks a cash crunch will hit by mid-June. While a European agreement could emerge next week, cash disbursements will be conditional on the Greek parliament rubberstamping the deal. With Greece drawing “red lines” on primary surpluses and changes to pensions, passing a deal acceptable to creditors through the Greek parliament will be hard. A missed payment is looking increasingly likely.The focus is understandably shifting to the fallout from a potential default. A missed payment to the Fund would not place Greece in technical default immediately. Greece could have an implicit grace period of about a month. But it would signal deeply entrenched positions around the negotiating table. ECB support to the Greek banks could also come into question, accelerating capital outflows.
The case for Greek contagion has largely rested on what the crisis in this small country in the European Southeast says about the euro area architecture. The Greek crisis would be less relevant now that backstops have been strengthened and other peripheral countries regained some competitiveness. But austerity has left political scars, the implications of which are still sinking in. The highly uncertain fallout from a Greek exit could add momentum to centrifugal political forces.
