Just when we thought the only issue of immediate concern for the Eurozone was whether the European Central Bank would eventually start sovereign bond QE, the old perennial problem of Greece returns to centre stage.
In some of my earlier analyses this year, I said that it was unbelievable that in May — when Greece was still in the bailout programme — it was decided that the market-required yield for it to borrow in the five-year maturity was acceptable.
The average yield during April and May 2014 for five-year Greek debt was 4.934% and the spread over Germany was 492.8 basis points. At the time, I argued that if a nation still had to rely on creditor support, it should not be permitted access to the international market. However, investors snapped up the paper in their greedy hunt for yield.
Fast forward to September/October as talk emerged that Greece was seeking an early exit from the bailout. At this point, Greece would not turn to the market for new cash but would instead receive a soft loan from the European Union.
One can see that during September and October, the average spread of Greece over Germany in the five-year maturity range was 496.5 bps — not radically different from the April/May level. Greece, however, was not willing to seek new funds in the market as the yield curve had risen (with Greece facing borrowing costs in the five-year range of 5.141%, 56.2 bps higher than the last time it tapped the market).
Some may say I am naive, but to my mind it is just nonsensical how a nation can be allowed to borrow money when it is dependent on financial hand-outs from creditors.
The moment, however, said nation thinks it can stand on its own two feet, it will still request a soft loan as it doesn't like the open market borrowing rate it would be charged.
"But the rates are so much better". Photo: Philip Lange \ Hemera
How discussions about a Greek bailout exit ever reach the negotiating table is beyond me.
A ploy, a gamble and a Eurozone farce
It was known that in 2015, the Greek coalition would have to nominate a new candidate for the role of president. It was always going to be a stretch for the government to secure three-fifths of all MPs, as the main opposition party — Syriza, a self-described radical left coalition — would be highly likely to block the vote and consequently force a general election.
It was at this point that prime minister Antonis Samaras determined that if he could claim to be the leader that removed Greece from the bailout programme (and see the back of the hated troika of the International Monetary Fund, the European Central Bank and the European Commission), then it was just possible he could win enough seats to block a Syriza-led left-wing coalition from forming a government.
His decision has proved to be deluded as Athens has missed the required targets on its budget measures; as a results Eurozone finance ministers decided that Greece will stay inside the bailout agreement, but they have now granted it a two-month extension to its current loan programme (which was due to run out at the end of December).
This is the Eurozone at its worst. A sovereign nation that should never have been allowed into the euro in the first place — that should have left the euro in 2010 — has once again been rewarded for failing to deliver its side of the bailout bargain.
This new decision is a naked attempt to give Greece time to meet the outstanding demands of the troika. It will not exit its four-year, 245 billion euro bailout by the end of December. But let’s not just believe the troika are being generous: They have to be show a degree of accountability, and as such the extra time is designed to shine a spotlight on Greek finances, to determine if the 2015 national budget is watertight.
It was not too long after all this that a new bombshell was dropped onto the market as Prime Minister Samaras announced that the upcoming presidential election is to be held this month and not early next year as was originally scheduled.
Antonis Samaras could be risking both his job and the Eurozone's stability
in the next general election. Photo: Oli Scarff \ Getty
This ballot, involving members of parliament, rests on a knife-edge given the coalition’s thin majority in parliament. The first ballot takes place on December 17, when 200 votes will be required for a candidate to win.
This is so chaotic that it defies words. There are just eight days before the first vote and there is no listing of who is standing as a candidate! Later today, Mr. Samaras is due to reveal his choice.
If the candidate fails to receive 200 votes, there will be a repeat election on December 23, and in the second ballot the candidate needs 200 votes to be elected. If he or she does not receive them, there will be a third and final vote on December 29, but this time only 180 votes will suffice for his or her election.
It certainly does not look as though there will be a candidate who will secure the required votes, so a snap general election seems almost bound to happen next year (as failure to elect a candidate after three rounds of voting would cause the collapse of the fragile coalition and the dissolution of parliament).
Who could be a candidate?
The game of picking runners and riders has started, and among the touted names are European Commissioner Dimitris Avramopoulos; philanthropist Marianna Vardinogiannis; Nobel Prize nominee Dimitris Nanopoulos; former European commissioner and New Democracy vice president Stavros Dimas; former minister Yiannis Varvitsiotis; former interim prime minister Panayiotis Pikramenos; former minister Alekos Papadopoulos; film director Costas Gavras; and European Court of Justice president Vasilis Skouris.
The early speculation in Athens is that that the most plausible candidate will be Stavros Dimas, who allegedly met with Mr. Samaras this morning.
Syriza… can you govern?
Alexis Tsipras is the leader of the radical left-wing Syriza party and is the official leader of the opposition. In September, he had an audience with Pope Francis (who has shown his left-of-centre credentials already). They found broad agreement on the injustice of the harsh austerity policies that have been imposed on Greece and other weak economies within the Eurozone.
Syriza leader Alexis Tsipras enjoys popular support but his economic policies
might be more than Athens can afford. Photo: Oli Scarff \ Getty
Syriza finished 3.8% ahead of the governing coalition (led by New Democracy) in May's European parliament elections.
A December 7 opinion poll gives Syriza a lead of 6% over New Democracy, up from 3.6% at the end of November.
If Syriza could hold its 6% lead into the general election, then projections show that it would be just ten seats short of a parliamentary majority. Given this, the next few weeks' polls should prove very interesting.
In his early days as opposition leader, Tsipras stated that he would rip up the bailout agreement. He appears to have moderated his tone of late, perhaps aware that he is on the threshold of both power and great responsibility.
Still, it would be wise to be cautious — if not outright suspicious — of a plan that calls for austerity to be rejected in favour of a tax-and-spend programme estimated to be worth some 11 billion euros.
The proposals demands that the minimum monthly salary be restored to a level 60% above the average salary now paid by the private sector. He wishes to implement a hard line on tax evasion, create 300,000 new jobs in both the state and private sector and to restore Christmas bonuses for pensioners.
Whilst I agree with the need to crack down on evasion, the reality is that — as with all socialist promises — it is just too good to be true. Sadly, this is going to be the nature of the general election, as all parties will make ever more ambitious promises.
The normally well-balanced New Democracy party have called for tax breaks, cuts in levies on property and heating fuel and reducing the corporate tax rate from 26% to 20% (I do like this last point).
Given that there is to be no early exit from the bailout, the prime minister is restricted in what he can offer as he has to be mindful of the latitude afforded him by the troika. It cannot be good for a coalition already trailing in polls to have to admit that Greece’s creditors are seeking new cuts amounting to a further 6,500 dismissals from the civil service, deeper cuts in pensions and a new law that will permit mass redundancies at larger companies.
The reaction today of Greek debt shows what a trying time the prime Minister and his political allies are facing:
Issue Yield Dec 8th Hi 9th Lo 9th Change Time
Greece 5Y 7.407 6.592 7.444 6.576 +0.815 12:26
Greece 10Y 7.852 7.274 7.896 7.325 +0.578 12:26
Greece 15Y 8.454 7.982 8.469 8.026 +0.472 12:26
Greece 30Y 7.847 7.435 7.847 7.476 +0.411 12:26
I see the fact that Samaras could not copy Portugal and exit the bailout programme early as simply steering votes over to Syriza. The population are weary of austerity and despise the IMF bossing the nation about.