Is The Greek Government Testing The Waters For Drachma-tization?

Via KeepTalkingGreece.com,

The deep rift between Greece’s European lenders and the International Monetary Fund leads to nothing else than to a delay in the conclusion of the second review. For one more time, the rift has triggered fears that another Greece debt crisis is looming and that even a default was at risk. While media report that the Greek government is seeking a compromise with both the European lenders and the IMF, some government lawmakers see return to drachma as the only possible scenario. Are the lawmakers expressing their own personal views or is the Greek government testing the waters for return to national currency, the Drachma, and Grexit?

Kostas Katsikis, MP of SYRIZA junior coalition partner Independent Greeks (ANEL) told a radio in Thessaloniki on Wednesday, that delay in the conclusion of the second review could coincide with the time Greece would have to meet its financial obligations. He was referring to scenarios that the second review would conclude in July, when Greece will have to make payments to interests and bonds.

“If  a solution is not found by February or March, then a popular verdict is the only way out,” Katsikis told radio North 98fm bringing back the scenario of elections or even a referendum as formulated last week by a SYRIZA lawmaker.

 

“If the second review does not conclude, if the negotiations extend and coincide with the time where outstanding financial obligations like interest and bonds payments have to be met. If there is no solution in February or by March, then the popular verdict is a one way street, I personally see nothing else.”

Katsikis is not the only one concerned about the delay of the second review. Investors fear the delay as well as the three-way quarrel between Greece, the EU and the International Monetary Fund, has triggered a fall in prices that suggests that logic might be flawed.

According to Reuters, the main concern for investors is that if a review of Greece’s bailout programme is not concluded by early July, Athens will not receive the money it needs to repay around 8 billion euros of debt mainly due to the European Central Bank but also around 2 billion euros owed to them that month.

Lutz Roehmeyer, a portfolio manager at LBB-INVEST in Germany who owns around 3 million euros of the bond, told Reuters there was a “little bit of doubt” that Greece could pay its debts and that “an accident” could happen. Overall, though, he was still expecting to be paid. “If it is coming to a default by accident then the ECB would suffer and from my point of view you want to avoid losses at the ECB level,” Roehmeyer said.

Expressing hope that reason prevails in Europe,  ANEL MP Katsikis said that in case of delay in review conclusion “we would have to manage the situation with what has been left, we should look at our economic situation.”

Describing the European lenders’ promises for debt extension and debt relief as “fairy tales,” Katsikis stressed that Greece has not seen any of these promises to materialize and added:

“Therefore return to national currency is a scenario that cannot be excluded, because I see nothing else.”

Katsikis is the second government lawmaker that openly speaks about the possibility to return to Drachma. SYRIZA lawmaker and former Alternate Minister of Culture, Nikos Xydakis, said that a debate about exiting the eurozone and return to Drachma should not be a taboo. Xydakis’ statement triggered an outcry among the opposition parties that urged the government to clarify whether it was planning a withdrawal form the eurozone. Later Xydakis partly corrected his statement saying he was not a Drachma supporter, however he insisted that all options should be discussed.

A day earlier, another SYRIZA MP, Christos Simorelis, had revealed that the government was preparing a referendum on the additional austerity measures demanded by the IMF.

The rift between European lenders and the IMF reached a new level with Eurogroup head Jeroen Dijsselbloem slamming the report of  the IMF’s board of directors as “outdated.” Greece was in much better condition than the IMF report claimed, Dijsselboem said among others on Tuesday.

Reuters notes the price of the bond fell to 95 cents in the euro on Tuesday, unusual for a bond so close to maturity that should trade slightly above par. Traders said that reflected around a 6 percent chance of default on that bond.

The cost of insuring against a Greek default has also spiked. Those contracts imply nearly a 50 percent probability of default over the next five years.

Fears of default could rise further in coming weeks.

Meanwhile in Athens, some media report that Greek Finance Minister Euclid Tsakalotos is preparing a compromise proposal to meet at least one of the IMF’s preconditions to join the Greek program. “Greece would accept broadening the tax base at annual income of 7,000-7,500 euros,” Proto Thema reported.

The worst scenario claimed the IMF wanted the tax-free allowance to fall down to 4,000 euros.

Either… or… signs are up that Greece and its lenders will not reach a compromise soon and conclude the second review since the IMF wants much more than this and is at severe odds with the European lenders about the sustainability of the Greek debt.

One aspect that should be considered in the Greek government intentions is also the possibility that the coalition government lawmakers try to put pressure on lenders and especially the Eurozone with Grexit threats.

Merkel and Schaeuble would not want to see a eurozone member drifting apart before elections in Germany are over.

The Brexit might not have serious impact on the European Union, but a Grexit would harm the euro and its credibility.

On the other hand, Germany will be the sole winner from a weak euro…

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As a reminder, Greece's situation is worse than the Great Depression...

h/t @MehreenKhn