As we have repeated since January [9], and certainly on numerous occasions over the weekend [10], at this point the only variable is what the ECB will do: will it give insolvent Greek banks more aid, or will it increase its ELA collateral haircut [11](or even withdraw it altogether), the ramifications of which action would have a dire impact on contagion within the rest of the periphery but most certainly on both the Greek financial system as well as Greek society which is now facing an indefinitely period of capital controls.
A quick reminder: this is how we laid out the dynamic between Greece and the ECB in on January 31 [9], which 6 months later, has played out precisely as forecast:
... today the ECB's Erikki Liikanen, tired of pleasantries and dealing with what to Europe is a completely incomprehensible and illogical stance, one which is essentially a massive defection by Greece in the European "prisoner's dilemma", and which while leading to a Greek financial collapse and Grexit - both prerequisites to a subsequent Greek economic recovery unburdened by the shackles of the Euro - would also unleash a European depression, came out and directly threatened Greece that it now has 1 month until the end of February to reach a deal with the Troika, or else the ECB would cut off lending to Greek banks, in the process destroying the otherwise insolvent Greek banking sector.
And since only the ECB backstop has prevented a banking sector panic, the ECB is essentially betting the house, and the sanctity of the Eurozone (because after a Grexit all bets are off which peripheral leaves next) that the threat, and soon reality, of a bank run (at last check Greece had about €145 billion in deposits still left in its bank after JPM's latest estimate of €15 billion in outflows in January) will finally force Varoufakis and Tsipras to sit at the negotiating table with the understanding that not they but the Troika has all the leverage.
As a result, everyone was waiting to see what the ECB's decision would be at today's latest ECB governing council meeting.
Moments ago Bloomberg leaked that the ECB will not get involved and will neither hike nor cut the ELA collateral, knowing full well the continuation of the status quo is a countdown to total financial sector collapse for Greece.
- ECB SAID TO SEE GREECE COPING TO WEDNESDAY WITHOUT MORE BANK AID
More from Bloomberg [12]:
The European Central Bank reckons Greece’s financial system can survive until at least after Tuesday’s summit of European leaders without an injection of extra liquidity, people familiar with the matter said.
The Governing Council may consider keeping the existing 88.6 billion-euro ($98.1 billion) assistance in place long enough to judge if Greece and its creditors can come any closer to agreeing on the country’s debt financing, the people said. The council is due to hold a conference call at 6 p.m. Frankfurt time on Monday, said the people, asking not to be named as the matter isn’t public. An ECB spokesman declined to comment.
The ECB may consider evidence of how political discussions are progressing, including a call of euro-region officials taking place before governors are due to talk, one of the people said. The ECB’s bank-supervision arm is scheduled to hold a telephone conference after the Governing Council call, another person said.
Promptly followed by the logical:
- GREECE EXTENDS BANK HOLIDAY, CAPITAL CONTROLS TO WEDNESDAY
Why Wednesday?
Because as Colin Lancaster, senior managing director with Balyasny, told Bloomberg earlier today [13], the Greek voters’ rejection of international bailout “sharply increases” probability of euro area exit.
That was not news. What was news is his estimation of what happens in the next few days: "We now have another 48 hours of calm before things really start happening", and the punchline: "situation could then break down as banks stay closed, ATMs will run out of cash Tuesday or Wednesday, uncertainty grows and rioting possible."
But don't worry: social unrest in Greece is bullish because according to the Balyasny MD, a "Fed September rate cut probably off the table" which in a world where fake markets indicative of fake confidence in artificial asset values is all that matters.
And while we hope that his forecast is completely inaccurate, recall what people "on the ground" said a week ago: The Mood On The Ground In Greece: "Some Have Raised The Prospect Of Civil War [14]."
We can only hope they are wrong too.
