So much for the Greek "conciliatory proposal" story in which Greece was said to "drop" its debt writedown request, driven by yesterday's FT article, and the catalyst for Monday's late day market surge.
As reported earlier today, first it was Germany's turn when it "threw up all over Varoufakis proposal, calling Greek plan "Half-Baked." And now, somewhat poetically, is the FT's turn to yank the other stool from underneath those who saw yesterday's development as even remotely meaningful as opposed to merely attempts by Greece's restructuring advisor Lazard to thrown anything at the wall and see what sticks, following a report that "the European Central Bank is resisting a key element of the Greek government’s new rescue plan, potentially leaving Athens with no source of outside funding when its international bailout expires at the end of the month."
Which, incidentally, is what we meant when, commenting on the revised Greek proposal which is yet another "haircut" in all but name, we said yesterday that it is "something which the ECB will never agree with."
As a reminder, Yanis Varoufakis, Greek finance minister, had proposed to European officials that Athens raise €10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is agreed with its eurozone partners. Recall that February 28 is the latest and greatest D-Day for Greece, and as the ECB has made quite clear before, a deal has to be made by that date or else all bets, Greek bank funding will be cut off, but not before disastrous bank runs rock the nation in the days and hours preceding.
So here comes the latest lob by the ECB, in what is nothing but a game of "who has the more leverage."
But the ECB is unwilling to approve the debt sale. It will not raise a €15bn ceiling on T-bill issuance by the requested €10bn, according two officials involved in the deliberations. “The Greek plan relies fully on the ECB,” said another eurozone official briefed on the talks. “The ECB will play hardball.”
Without T-bill financing, Athens will exit its bailout without access to emergency funding for the first time since the first Greek bailout began in May 2010.
The ECB’s stance raises the stakes in the stand-off between the anti-austerity government in Athens and its international creditors, which if unresolved, could end with Greece running out of cash within weeks.
It is also likely to puncture a sense of optimism among investors over Greece’s alternative rescue plan and a softening of its insistence on debt cancellation, which lifted the Athens stock market 11.3 per cent on Tuesday and pared 10-year borrowing costs by nearly a full percentage point.
At the end of the day, it was and always has been about one simple thing: who has leverage, and who is overplaying it.
Despite pressure from several EU leaders, officials who have met Mr Varoufakis say he has insisted the new government cannot ask for an extension for political reasons, since it would send a signal they are willing to go along with the current bailout — a message Mr Varoufakis reiterated at meeting on Monday in London with leading bankers.
“They realise their leverage is low but they feel they are on a mission, and he gives the impression that they are prepared to risk a lot,” said one banker at the London meeting. “Not renewing the programme is just an illustration. He was very clear that they will not ask for an extension.”
So with this particular avenue a dead end, the market hasn't even digested the news and here comes yet another media report citing "circles", this time Germany's FAZ, which reports on the latest attempt by Lazard to throw a few more proposal at the European wall and see if any one will stick. To wit, via BBG:
- GREECE OFFERS TO SWAP DEBT FOR BANK SHAREHOLDINGS, FAZ REPORTS
- GREECE OFFER WOULD COVER EU41 BILLION IN BANK BAILOUT: FAZ
It is unclear if Greece is in effect offering to do a public debt for private equity swap, in the process handing over control of its otherwise insolvent banks explicitly to existing holders of Greek debt (hint: they are already involuntary owners of the Greek banks), but whatever the proposal is, it will fail until Europe makes it very clear to the upstart Greek negotiators that whatever leverage they think they have, does not exist.
Which brings us back to what Merkel's caucus leader Volker Kauder said earlier today:
"We’re not going to play this game,” Kauder tells reporters in Berlin ahead of CDU/CSU caucus meeting. “I’m not ready to comment on half-baked plans every day. The fact remains that we have agreements with Greece and not with a government -- and these agreements have to be adhered to.”
... and, as we also said, we are now back to square one.
In other words, absolutely nothing has been resolved which is par for the course for Europe, but the momentum of Greek leverage has been broken and now it is only a matter of time before the new Greek government admits it is, for all intents and purposes, a continuation of the Pasok/ND regime where it does whatever Europe tells it to do. Unless of course, Tsipras is willing to actually make good on his pre-election promises, something which would now necessitate a full break from the Eurozone, which it has now become clear, it isn't prepared to do. Which, sadly for Greece, also means it now has absolutely zero leverage because its only trump card was the threat of a Grexit, a trump card it lost in less than 10 days.