Greek Vote Bribery Scandal Brings Goldman's "Worst Case" Scenario Closer

While no one will be entirely surprised in today's consequence-less world, the "bombshell" news that Greek Independent MP Pavlos Haikalis claims he was offered EUR 2-3 million in order to vote for Greece's next President is no less shocking in its exposure. As AP reports, it is the second such claim from the Independent Greeks. Another of the party's lawmakers claimed last month that someone had approached her with the intention of bribing her. The government immediately jumped into defense mode and dismissed the claims as "badly acted theater" and called for any evidence to be made public. However, as KeepTalkingGreece reports, "sources" from the prosecutor’s office told media that Haikalis did indeed submit footage, and according to latest information, told the briber’s name to the Greek Police. This can only bring Goldman's worst-case scenario - a Cyprus-style collapse - even closer for Greece.

 

As AP reports,

A lawmaker from a small right-wing party claimed Friday that someone he did not identify had attempted to bribe him to vote in favor of electing Greece's new president.

 

Bailed-out Greece is in the midst of a presidential vote that could trigger early general elections, if its 300-member parliament fails to elect a president by the third round of voting on Dec. 29. The sole candidate, nominated by the government, fell 20 votes short of the necessary 180 in the first round Wednesday.

 

Actor Pavlos Haikalis of the Independent Greeks claimed during a phone-in to a live television program that he was offered about 700,000 euros in cash, a loan repayment and advertising contracts, with the alleged bribe's total value amounting to about 2-3 million euros ($2.4-$3.7 million). He said he had informed a prosecutor about two weeks ago and had turned over audio and video material.

 

It is the second such claim from the Independent Greeks. Another of the party's lawmakers claimed last month that someone had approached her with the intention of bribing her.

 

Government spokeswoman Sofia Voultepsi dismissed the claims as "badly acted theater" and called for any evidence to be made public.

 

"It is obvious why these ridiculous performances are set up: so that a president of the republic is not voted for, and the country is led to early elections," Voultepsi said in a statement. "For reasons of public interest, the evidence must be made public immediately. If there is no evidence, legal procedures must begin immediately against the perpetrators of this wretched affair."

 

The Independent Greeks' popularity has been waning, with opinion polls indicating it could struggle to make it into parliament in general elections.

And KeepTalkingGreece provides some more local color...

“It started as a joke, but then things got serious,” Haikalis adding that he had video and audio material and that he took the case to the prosecutor and that he also gave name and address of the briber.

 

The MP refused to name the person who attempted to bribe him, but stressed that the person “was known to the economic and political world.”

 

Chaikalis’ claims come just two days after the first round of voting for the country’s next President and four days before the second round. Last Wednesday, the coalition government of Nea Dimokratia and PASOK failed to gather enough votes to elect Stavros Dimas for President. 127 ND lawmakers, 28 PASOK and 5 MPs voted in favor of Dimas. The 160 votes were far below the needed 200.

 

Independent Greeks is a nationalist, anti-austerity party that voted against Dimas candidacy. The party want snap polls.

 

Pavlos Haikalis told ANT1 TV that he submitted the video material to prosecutor 15 days ago adding that “we kept the issue secret waiting for Justice to intervene, but nothing has happened so far.”

 

...

 

“Sources” from the prosecutor’s office told media that Chaikalis did indeed submitted footage. According to the Justice sources, the footage contained “clear sound” but “blur image.” Therefore the prosecutor brief the police that established a special team to optimize the video quality and recognize the briber.

 

...

 

According to latest information, Chaikalis told the briber’s name to the Greek Police.

 

As whole Greece is keen to learn who attempted to bribe an MP in order to elect the President and avoid early elections, according to investigative journalist Kosta Vaxevanis , the briber was allegedly from the “environment of  former PM George Papandreou” and “somebody who has worked for a Greek and a German bank.”

 

So far it is not clear whether the briber was just a middleman.

 

According to Vaxevanis’s website To Kouti tis Pandoras, Haikalis had three meetings with the briber, he had brief Independent Greeks chairman Panos Kammenos and they had decided to wiretap the meetings and conversations. The police had entrapped Haikalis’ home but that the briber did not appear in the crucial meeting.

Bringing Goldman's worst-case scenario closer...

In the event that the parliament fails to elect a president, general elections would be held and market uncertainty/pressures would extend. At this stage it is important to understand that market pressures are not linked to the democratic process of elections nor to a potential government change, whatever the ensuing government formation may be. They are linked to the risk of policy discontinuity and a severe clash between Greece and international lenders. More specifically, we think the room for Greece to meaningfully backtrack from the reforms that have already been implemented is very limited. Any such attempt would lead to an interruption of official financing to Greece.

 

Examining the downside scenario.

 

To be sure, even in the event of a government change, there is room for a cooperative solution between Greece and Europe. Greece has made significant reform progress between 2012 and the gap between what has already been implemented and what remains to be done is not insurmountable.

 

Also, the incentives for a clash are not there. For instance any Greek government would likely want to capitalize on the momentum that the economy is building on the activity front, rather than trigger a disruptive capital flight that would lead Greece to a double–dip recession. In addition, given that more than 80% of Greek debt is held by the official sector and given that any OSI would be feasible only as part of an agreement with the Euro-area, there is an incentive for a Greek government to pursue cooperative solutions.

 

However, the history of the Euro-area crisis has shown that the probability of an “accident” can never be dismissed, when it comes to intra-EMU politics. And it is important for markets to be able to understand and quantify the aspects of a potential downside scenario, where official financing to Greece is interrupted.

 

The Biggest Risk is an Interruption of the Funding of Greek Banks by The ECB.

 

Pressing as the government refinancing schedule may look on the surface, it is unlikely to become a real issue as long as the ECB stands behind the Greek banking system. In fact, refinancing became a lot more pressing between 2011 and 2012. But financing needs were met despite the impasse in negotiations between Greece and international lenders – partly via the issuance of T-bills repoable at the ECB by Greek banks. Such methods can always be revisited at times of extreme need.

 

But herein lies the main risk for Greece. The economy needs the only lender of last resort to the banking system to maintain ample provision of liquidity. And this is not just because banks may require resources to help reduce future refinancing risks for the sovereign. But also because banks are already reliant on government issued or government guaranteed securities to maintain the current levels of liquidity constant.

 

And this risk can become more pressing from a timing perspective. At the heat of the Greek crisis, there was evident deposit and broader capital flight, which Greek banks helped accommodate with ECB’s help via the ELA facility. In the event of a severe Greek government clash with international lenders, interruption of liquidity provision to Greek banks by the ECB could potentially even lead to a Cyprus-style prolonged “bank holiday”. And market fears for potential Euro-exit risks could rise at that point.

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