Over the past several weeks we’ve documented the acute cash crunch that’s crippled the Greek banking sector and ultimately brought the country to its knees.
As the crisis unfolded and Athens’ negotiations with creditors became increasingly contentious, Greek banks began to bleed cash. Eventually it became clear that the banks were relying entirely on the Eurosystem to meet outflows.
Meanwhile, banknotes in circulation surged, as cash usage jumped 44%, prompting Barclays to note that “the amount of banknotes in excess of the quota for Greece represents a liability of the BoG to the Eurosystem.” Essentially, we said, Greece was quietly printing billions of euros.
Now, with the ECB holding steady on the ELA cap and the banking system still hemorrhaging deposits despite the imposition of capital controls, Greek banks are running out of cash — literally. Continue reading
The threats are flying fast and furious now.
Moments after the WSJ quoted a Greek official as saying that Greece will not make its IMF bond payment, the ECB struck back when Bloomberg reported that the ECB would review the legality of Greek aid should there not be a deal, i.e., on July 1 post an IMF default. According to Austrian central bank Governor and ECB member, Ewald Nowotny, on Wednesday’s governing council meeting the central bank will decide whether it can continue to provide emergency support for Greece once current bailout program expires June 30, as the Wiener Zeitung originally reported. Continue reading
There has been some confusion why Germany and the Eurozone are so strict in negotiating with France and unwilling to concede even to the smallest of what they deem as outlandish Greek demands. The reason is not so much whether Spain or even Italy, both countries with soaring unemployment, a lost generation and a sweeping movement against “austerity”, follow with comparable demands should Europe concede to Tsipras, but France, where the frontrunner for the next president, the National Front’s Marine Le Pen, has just warned that not only is a Grexit inevitable, but that France would follow shortly.
Here it is worth reminding that one of the biggest European concerns with Greece is not so much its resolute attitude toward Greek demands which Europe can easily squash and force a regime change by cutting off ELA to Greek banks forcing a prompt and violent coup d’etat, but dealing with political parties who promise anything and everything just to be elected, in the process pushing aside Europe’s preferred technocrats who will do the bidding of Brussels without the smallest objection. Continue reading
We’ve long said that negotiations between Greece and its creditors are more a matter of politics than they are a matter of economics or finance.
From the troika’s perspective, breaking Greece and forcing PM Alexis Tsipras to concede to pension cuts and a VAT hike is paramount, and not necessarily because anyone believes these measures will put the perpetually indebted periphery country on a sustainable fiscal path, but because of the message such concessions would send to Syriza sympathizers in Spain and Portugal. In short, the troika cannot set a precedent of allowing debtor nations to obtain austerity concessions by threatening to expose the euro as dissoluble. Continue reading