Greece made payment to IMF on time but cash shortage remains

The Managing Director of the International Monetary Fund(IMF), Christine Lagarde, has confirmed that the Greek government made a 459 million euro payment due on April 9.

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Lagarde was confirming a statement by a source in the Greek finance ministry that the payment had been ordered. The crucial payment will help Greece move closer to receiving more funds from an extended bailout loan that will help Greece stay in the euro zone. The Greek government had threatened not to make the payment on time if it would not be able to pay pensions and a government payroll a few days later. Greece will still need to make interest payments of 400 million euros and roll over 2.4 billion euros in short-term treasury bills on April 14 and 17. Even yesterday, Greece issued 1.14 billion euros in six month term treasury bills. The Greek unemployment rate declined marginally in January to 25.7 percent in January versus 25.9 percent the previous month. After a long recession, the Greek economy grew 0.7 percent last year.

In his recent meeting with Russian president Vladimir Putin, Greek Prime Minister Alexis Tsipras did not request any economic aid. Putin suggested Russia might provide credits for large scale joint projects in the future. He said:"The Greek side has not addressed us with any requests for aid, We discussed cooperation in various sectors of the economy, including the possibility of developing major energy projects."

The recent list of reforms presented by the Greek government to its creditors is not regarded as enough by Greece's creditors. Euro zone deputy finance ministers have given Greece six working days to come up with revised reform proposals in order to allow a deal to be reached on April 24 at a Eurogroup meeting in Riga, Latvia. The earlier reform list was regarded as too optimistic about revenue projection and did not deal adequately with pensions and labor market reform. On these latter issues the Eurogroup demands are at odds with the promises of Syriza during their election campaign.

While the IMF payment may provide a short term sense of relief, Greece's top banks including the National Bank of Greece are bracing for a continuing battle as more payments become due. Reports indicate that a default and Grexit or exit from the euro zone, could create even more hardships for the Greeks and problems for the Greek economy. Even if Greece does get the remainder of the funds in this bailout extension after the meeting on April 24, within two months it will need more funds to cover its debt. The Greek government says it does not want another bailout but it is not clear how this can be avoided.

Alan Greenspan, former head of the US Federal Reserve, on the Greek crisis

The former head of the U.S. Federal Reserve, conservative economist Alan Greenspan argues, that the only way for Greece to get out of the present bailout terms is a Grexit — to exit the euro zone.

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Greenspan, was Chair of the US Federal Reserve from 1987 to 2006. He was a champion of free market capitalism and was part of the the inner circle of Ayn Rand and a supporter of the philosophy of Objectivism. After he became head of the Federal Reserve some objectivists criticized him for abandoning free market principles.Democrats often criticized him as having politicized his position as head of the Reserve. Greenspan argued strenuously for the privatization of social security. Although a Republican, Greenspan strongly supported President Bill Clinton in 1993 when Clinton introduced a deficit reduction plan that included tax increases and budget cuts. Greenspan's policies that shunned regulations are regarded by some as partly responsible for the recent recession. In a Congressional hearing n October of 2008, Greenspan admitted that his free-market ideology that led him not to adopt some types of regulation had been mistaken.

Greenspan has long been critical of the euro zone single currency. He believes that only a political union creates the conditions that can support a single currency. You need something like a United States of Europe. At this time, Greenspan claims the 19 sovereign countries of the euro zone are unwilling to create such an entity and hence the euro zone is doomed.

Greenspan believes that the EU will not be willing to put up even more loans that are necessary to bolster the Greek economy. German Finance Minister Wolfgang Schaeuble claims that the Greek bailout conditions were very generous and he saw no justification for relaxing them further. While Greek finance minister Yanis Vourafakis believes that he can negotiate a new deal that will allow Greek to escape from its debt trap, grow the economy, and spend on social programs, Greenspan thinks that the only way that Greece can resolve its situation is through a Grexit, or exiting the euro zone altogether. Greenspan says: "I believe [Greece] will eventually leave. I don't think it helps them or the rest of the eurozone - it is just a matter of time before everyone recognises that parting is the best strategy...The problem is that there there is no way that I can conceive of the euro of continuing, unless and until all of the members of eurozone become politically integrated - actually even just fiscally integrated won't do it."As for Varoufakis and Tsipras being able to negotiate a new deal, Greenspan claims that it is the euro zone officials who hold all the cards.

While Greece will be forced to leave the euro zone according to Greenspan, this will leave the euro intact. He agrees that the zone is readier now than earlier to survive the Grexit. However, the attempt to hold the euro zone together is putting strains on other countries as well such as Italy, Portugal, Spain, and even France. Greenspan thinks that in time other southern European countries may also choose to exit the zone.

Greenspan has been wrong in the past, particularly with respect to the ability of markets to act rationally without regulation and avoid a crash. In 2008 the financial crisis, many believe, prove Greenspan wrong and he himself appears to admit this. Nevertheless, Greenspan's analysis of the situation in Europe is well worth considering and may prove correct.

Yanis Vourafakis, the Greek finance minister, continues to insist that there is no plan for a Grexit and that any such move would bring down the entire euro zone "house of cards" :“Exit from the euro does not even enter into our plans, quite simply because the euro is fragile. It is like a house of cards. If you pull away the Greek card, they all come down. Do we really want Europe to break apart? Anybody who is tempted to think it possible to amputate Greece strategically from Europe should be careful. It is very dangerous. Who would be hit after us? Portugal? What would happen to Italy when it discovers that it is impossible to stay within the austerity straight-jacket?”

Euro zone officials believe that the zone can easily withstand a Grexit. They may be correct, but in the longer run, as Greenspan points out, the pressures will grow in several southern European countries and others will leave the zone.

Syriza moves to the middle as it seeks to win Greek election

In In order to gain enough votes to win elections leftist parties often jettison their more radical positions in order to attract voters more to the middle of the political spectrum. This is clearly a strategy that Syriza is pursuing.

The leader of Syriza, Alex Tsipras, has stressed recently that he does not want Greece to leave the Euro zone. He expresses optimism about creating conditions for repaying Greek debts:Tsipras reiterated that he wanted Greece to stay in the euro zone. "Our goal is to reach a new agreement -- within the euro zone -- that would allow the Greek people to breathe ... and to live in dignity by restoring debt sustainability and finding a way out of recession through financing growth," Syriza is either abandoning or not mentioning many of the policy planks adopted at its first Congress in July of 2013. The policies are set out in detail here. The policies include the following: "..withdrawal from NATO, closure of all foreign military bases, termination of military cooperation with Israel...and the application of the principle “no Greek soldier at war fronts outside Greece’s border”. The struggle for peace and nuclear disarmament is of top priority for SYRIZA and it is closely related to the struggle for democracy." Tsipras on Twitter the other night said: “A breach with NATO is not in the interest of the country.” He went on to say that Greece is bound by and will comply with international agreements that it has with the EU and NATO. As Eirini Karamouzi, of the University of Sheffield put it: “The flagship of their policy is debt relief, and their main preoccupation will be domestic. There’s no bargaining chip for Greece right now to lead on the main foreign-policy fronts.”

 The mainstream business press rather than becoming less strident in their critique of Syriza has suffered from bouts of hyperventilation at the thought of Syriza taking power, resulting in extremist rhetorical polemics: The Wall Street Journal has called SYRIZA leader Alexis Tsipras “the Hugo Chavez of the Balkans”, saying that his economic program will set him on a “collision course with the rest of Europe”. Bank of America Merrill Lynch described the SYRIZA economic program as a “Greek Tragedy”, and a senior analyst with the Capital Group, a fund with US$1.4 trillion in assets, described SYRIZA’s program as “worse than communism” and “total chaos”.

Syriza does still seem to be on a collision course but with the Troika, rather than with Europe as a whole, since France and Italy also oppose the strict adherence to austerity policies that the Germans are pushing. Syriza and the situation in Greece represent the same discontent with austerity policies that can be found in many southern European countries. Ian Kearns, of the European Leadership Network claims: “This is much more about a crisis of European politics now and whether particularly the southern European publics are willing to stay with this project if it means almost endless austerity.This all potentially contributes to a less cohesive Europe, to a weaker Europe.” The European status quo is also threatened by the growth of parties on the right as well as those on the left such as Syriza.

Standard and Poor downgrades Greek credit rating

  On Tuesday rating agency Standard and Poor revised Greece's credit outlook to negative. The agency said that the debt-ridden country might need even more aid from creditors. The Troika(IMF, European Commission and European Central Bank) has demanded that the country meet its obligations to impose austerity policies before it can receive more money. However, given the economic and political situation this may be impossible.
    In a statement S and P said:. "We are revising the outlook on the long-term ratings on Greece to negative, reflecting the possibility of a downgrade if Greece fails to secure the next disbursement of the EU/IMF Program,"  Greece has made budget cuts but members of the Troika will be returning in September and will decide then if conditions for further aid have been met. After their visit the inspectors said:. "We see the likelihood of shortfalls, owing to election-related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy," The coalition government that won the recent election has been asking for changes and more time to meet the conditions set earlier for aid..
  S and P said that the Greek economy will shrink10 to 11 percent over the 2012-13 period even after a recession that has lasted years. Greek credit is at CCC a speculative rate already.  Fitch rating agency gives Greece the same grade. This is eight levels below investment grade. GDP has shrunk for five years now.Unemployment has risen to 22.5 per cent and is much higher than that among young people. However, the Troika wants Greece to cut even more state jobs to help balance the budget. Creating even more unemployment and fewer jobs is hardly a recipe for generating more revenue that could be used to pay down debt.  Just to tide it through this year Greece may need up to 8.7 billion U.S.  For more see this article.

Greece and Spain fear panic runs on banks

An article in Der Spiegel notes that both Spain and Greece are worried about panic withdrawal of funds from banks. The Spanish government just recently has denied that one billion Euros was withdrawn from the major bank Bankia last week alone.

Moody's downgraded ratings on sixteen Spanish banks. Greeks who fear that the Euro might eventually be replaced by the Drachma are withdrawing hundreds of millions of Euros from their accounts. In Italy too the banks are under pressure as Moody's also downgraded a total of 26 Italian banks.

. The Spanish central bank has admitted that the proportion of bad loans in banks is at an 18 year high. Bad loans make up 8.36 per cent of loans in March up from 8.15 per cent a month earlier. No doubt the rate is even higher by now.

Some financial experts are calling for intervention by the European Central Bank before a surge of withdrawals increases. A sovereign debt analyst said:. "Once a bank run begins, it is very hard to stop without a credible deposit guarantee," "Given the fragile fiscal position of Spain, the European Central Bank is under increasing pressure to step in to calm depositors' nerves."

However the ECB has already provided banks cheap three year loans as part of the LTROs (Longer Term Refinancing Operations). Banks have borrowed almost one trillion Euros through this program. But banks are running out of assets to back those loans. If they lose deposits this will make the situation even worse. For much more see the full article.

Greece: New elections to be held on June 17

Panagiotis Pikrammenos Council of State chief will head a caretaker government until a new government is formed after elections on June 17th. Numerous attempts to form a coalition government failed. The resulting uncertainty is roiling markets and caused a run on Greek banks. Many Greeks fear that Greece will return to the Drachma the former Greek currency. The caretaker government will not have the power to make any binding commitments.

About 898 million dollars have been withdrawn from Greek banks. A spokesperson said that as yet there is no panic but there is great fear. Theodore Krintas manager director of a wealth management company said:"I would expect the population to quietly be doing what it has been doing in the last days. In other words, some of the Greek citizens are afraid and are taking a portion of the money, but I'm not expecting a bank run,"

The election on May 6th was a disaster for the two leading pro austerity parties especially the socialist PASOK party. Greeks voted for parties that reject the austerity package imposed upon them by the EU's Troika..

The spending cuts and tax hikes have left the country mired in the fifth year of a deep recession and sent unemployment soaring to above 21 per cent, and many argue the country cannot hope for recovery if they stick to the deal. The Greeks are fed up with austerity measures that have brought a recession lasting five years now and an unemployment rate over 21 per cent. It is much higher among youth.

The Sytriza party ,an anti-austerity grouping, according to polls will increase its vote and come in first in the upcoming election. However, no doubt there will be a great deal of pressure upon the Greeks to vote for the austerity measures both from within and without the country. The prospect of Greece leaving the Euro zone is becoming a real possibility recognized even by the IMF. The IMF head Christine Lagarde said:"If the country's budgetary commitments are not honoured, there needs to be appropriate revisions, which means either supplementary financing and additional time, or mechanisms for an exit, which in this case must be orderly,""

The head of Syriza Alexis Tsipras that came second in the May 6 elections requested "that the caretaker government should not implement measures that would involve further cuts in salaries, pensions and public spending, that would dismantle labour relations or allow privatizations. . I also asked for a freeze on every ongoing process regarding the sale of state property."

Even if Tsipras does not win enough seats to govern alone after the next election his party will receive 50 extra seats for coming in first place and he should easily be able to form a majority with another anti-austerity party on the left. However so far the Greek communist party has rejected the idea of joining a coalition. The next government will in all likelihood reject the austerity agreement reached with the Troika.

Robert O'Daly of the Economist said:"This will make reaching an agreement between the next government and Greece's international creditors extremely difficult, raising the risk of a Greek exit from the euro and sovereign debt default," "The consequences of this would be dire for Greece and probably the rest of the euro area." For more see this article.

Attempt to form Greek coalition government fails again

According to this article the third attempt to form a coalition government has failed. The PASOK socialist leader Evangelos Venizelos was able to bring the major New Democracy party into his coalition and at first it seemed that he had also the agreement of the Democratic Left a smaller party to join in the coalition.

However, the Demiocratic Left insisted that the 2nd place leftist Styriza party also be part of the coalition. Stryiza is strongly against the austerity plans and refuses to be part of any pro-bailout coalition.

Venizelos will speak to the president tomorrow:"I will brief tomorrow the president of the republic. I hope that during the phase of talks with the president, everyone will think more maturely and more responsibly," The deal with the Democratic Left would have given the coalition 168 seats in the 300 seat parliament. However if any one of the three were to vote against a measure along with the opposition a bill would fail.

Assuming there is no last minute agreement to form another coalition when Venizelos reports to the president, the president himself will try one last time to form a emergency salvation government by summoning all leaders. If that move fails then the president could call new elections as early as Sunday or Monday.

Styriza probably has little interest in forming a coalition. Opinion polls show that if new elections are held that its vote would go from 16.8 per cent to almost 28 per cent and win about 128 seats. The first place finisher gets 50 extra seats and this would give Sytriza enough seats to rule on its own. If that happens goodbye bailout deal. For more see this article or here.

Second attempt to form a Greek coalition government fails

The leader of the second place finisher in Greek elections the Syriza party has admitted failure today in his attempts to form a coalition government. Alexis Tsipras said he failed because he insisted on rejecting the austerity measures required by the Troika in return for new bailout money.

Tsipras talked only with New Democracy and PASOK the first and third parties in election results. He might have tried a left coalition but the Communist Party has indicated it would not join in a coalition.

The leader of the third running party Evangelos Venizelos now has his turn although it seems unlikely he can be successful. If he fails then there will be elections in June and a long period of crisis. There may be a great deal of pressure on PASOK and New Democracy to form another coalition to avoid elections and carry on with reforms.

If Athens rejects the austerity deal the money that was promised in June will probably not be given. Both the EU and Germany have made it clear they expect Greece to keep its commitments if it expects to have new money.

In the short term the EU will provide an installment of 6.7 billion to meet immediate debt obligations. Representatives of the Troika (European Commission, European Central Bank and International Monetary Fund) have aborted a trip to Athens that was to happen in mid May. No date has been set for another meeting. The Troika are obviously standing by until the situation in Greece becomes more stable or at least clearer! For more see this article..

Greece: Leftist Syriza party to try to form government

In spite of warnings from the EU that Greece must stick to the bailout deal the country seems in no mood to fall in line with those demands. Greece is in its fifth year of recession and the populace is fed up with austerity policies.

Antonis Samaras whose New Democracy party came in first in the polls was unable to cobble together a coalition government. Samaras said:"I did whatever I could to secure a result but it was impossible," Syriza and a small leftist party rejected Samaras' offers. Two other relatively large parties the nationalist Independent Greeks and the Communist Party refused even to meet with Samaras. The PASOK party also could not agree to a coalition.

If no coalition government can be formed new elections could take place as early as June just as Greece has to deal with new austerity measures. In spite of the fact that voters obviously reject the terms of the bailout plan Angela Merkel said:"It is of course of utmost importance that the programmes in Greece continue," The second place Syriza party is attempting to cobble together a government. However any government formed will be opposed to the terms of the austerity plans imposed on Greece by the EU.

The leader of Syriza AlexisTsipras will be given three days to try and form a government. An Al Jazeera reporter said:"There are fewer chances today, I think, of forming consensual government than we had yesterday when the largest party, the Conservatives, was trying its hands at it." Some analysts warned that if no government is formed that supports the austerity measures funds might be cut off and Greece might exit the Euro zone altogether. For more see this article and also this article.

Greece: Anti-bailout deal parties surge in exit polls

Results from exit polls are listed by Bloomberg here. The results so far suggest that even together the two biggest parties New Democracy (center-right) and PASOK(socialist) will not have enough seats to form a coalition government.

Although New Democracy had a slight lead according to one poll it was only between 17 and 20 per cent of the vote. Behind them was the other main party PASOK with between 14 and 17 per cent. However the anti-bailout party Syriza came from nowhere to get 15.5 to 18.5 per cent of the vote. Independent Greeks another anti-bailout party got as much as 12 per cent of the vote as well.

Martin Blum an asset management official at Ituba Capital said:“It’s a meaningful bearish shock to the lazy market consensus that New Democracy and Pasok could form a majority coalition,” The two old line parties need 151 seats to form a majority in the new parliament. It looks as if they may not reach that level.

Greece has received two bailouts amounting to 314 billion dollars altogether. In return the government has imposed pension and wage cuts as well as higher taxes. It is also privatizing state assets. If the new government cannot continue and even increase austerity measures the funds may stop flowing. International lenders want to know by June how Greece is going to achieve 11.6 billion euros in savings in the next two years.

The Greek economy is in a shambles with unemployment at almost 22 per cent. Among youth,, the figure is about 51 per cent. For more see this article. 
   Results are shown as they come in at this site including vote percentage for each party.

Violent Greek protests against new austerity measures

  The Greek parliament managed to pass the new austerity measures demanded by the Troika. In reaction protesters are out on the streets and some buildings have been set on fire. At least ten buildings have been torched so far.
    Demonstrators have been clashing with riot police throughout the day. The technocratic prime minister Lucas Papademos is urging calm. The austerity legislation is meant to clear the way for a $171.1 billion bailout payment.
   Up to 37 protesters were injured in the protests and many police officers as well. For more see this CBC article.   Another article points out that even if there is eventually a default all is not lost. Argentina defaulted some time ago and now its economy is growing by leaps and bounds.
 

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