Greece May Get Cruel Reward For Its Success

Greece reported recently that it has reached a primary budget surplus, the Holy Grail of austerity, meaning that once you exclude interest payments on the country’s massive debts, the country is finally taking in more revenue than it spends.

This news should be worthy of a ticker-tape parade, after three years of Draconian retrenchment and a partial writedown of privately held Greek debt. Cruelly, however, the main beneficiary of a return to primary surplus may not be Prime Minister Antonis Samaras and his pro-bailout government, but the main opposition Syriza party, which is pushing for the country to refuse further austerity measures and declare a moratorium on its debt payments. Read more of this post

To Get a Bailout, Cyprus Needs to Launder Its Reputation

For months now, the euro area and other international creditors have been debating whether to bail out tiny Cyprus, which accounts for just 0.2 percent of the currency zone’s economy. Why the holdup?

International creditors have said the stumbling block is that they are looking for a way to bail out the country without putting it on an unsustainable debt path. The real problem, though, is German elections in September: Many Germans believe Cyprus is one big money laundromat for Russian crooks, and proposing to bail them out is not a vote winner. Read more of this post

OSI likely, but not to give Greece a new lease on life in the EZ

Ever since the introduction of PSI (private sector involvement) in Greece, there has been talk of OSI (official sector involvement) occurring down the line. Mention of OSI in Greece has only intensified since the IMF openly advocated it last week. This was not the first time the IMF had spoken in favor of Greek OSI, but the fact that it was mentioned against a backdrop of protracted negotiations between the Greek government and the troika (the ECB, IMF and European Commission) made some wonder if OSI is imminent. I do think we will see OSI in Greece, but I expect it to accompany Greece’s exit from the Eurozone rather than returning Greece to public debt sustainability within the common currency area. Read more of this post

Note from Athens: Feeling on the ground has palpably changed

I travel to Athens about once every six months and speak with as many contacts as I can, including top policymakers, bankers, journalists, economists and academics. On my most recent trip in mid-February, the feeling on the ground had palpably changed in a number of ways that have supported my view that Greece will eventually default and exit the eurozone, but probably not before late 2013. Read more of this post

German proposal for Greece’s compliance: accelerating eurozone exit

At the top of my list of to do’s for the past few weeks has been to update the post on Greek PSI that I wrote just before Christmas to include some more recent developments, such as the prospect of ECB participation. Last night, Peter Spiegel from the Financial Times (@SpiegelPeter) published the German government’s proposal for Greece’s “improvement of compliance” with the terms of the bailout, and all of a sudden Greek PSI positively pales in comparison. According to Germany’s proposal, whatever the result of the PSI deal, Greece will need to “legally commit itself to giving absolute priority to future debt service” and “accept shifting budgetary sovereignty to the European level”. If the Greek government is not willing to do this, the troika would presumably turn off the taps of bailout money and Greece would default. With no access to market or official financing, Greece would be forced to exit the eurozone. Read more of this post

Remember Greek PSI?

Leading up to the October EU summit, there was a lot of speculation about the size and nature of the haircut that would be involved in a private sector involvement (PSI) deal for private bondholders of Greek government debt. The speculation was partly put to rest when EU leaders agreed a 50% haircut on Greek government debt in a debt exchange that would be voluntary. Many details of this deal must still be ironed out, and a hard deadline is coming soon. If a PSI deal is not agreed with significant take-up by February, Greece could face a hard default. Read more of this post

EU Summit Dec 8-9th: Kicking the Can Some More

At the very best, the recent EU summit served to do what eurozone leaders do best: buy time. But as with the last summit, what was announced was as important in some ways as what wasn’t announced: a number of details were not agreed and the ECB did not respond with an announcement that it would step in to support peripheral countries in the markets as a lender of last resort (LOLR). Read more of this post


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