Saturday, February 07, 2015

Greece Wants No More "Bailout Money" With Strings
BY LEFTERIS PAPADIMAS AND JAN STRUPCZEWSKI
ATHENS/BRUSSELS
Fri Feb 6, 2015 5:49pm EST

(Reuters) - Greece's new leftist-led government, isolated in the euro zone and under pressure from the European Central Bank, said on Friday it wanted no more bailout money with strings attached from the European Union and International Monetary Fund.

Instead, a government official said, it wanted authority from the euro zone to issue more short-term debt, and to receive profits that the European Central Bank and other central banks have gained from holding Greek bonds.

The official said Greece was in effect asking for a "bridge agreement" to keep state finances running until Athens can present a new debt and reform programme, "not a new bailout, with terms, inspection visits, etc.".

"It is ... necessary that Greece is given the possibility to issue T-bills, beyond the (current) 15 billion euro threshold, in order to cover any extra needs," said the official, asking not be named.

Finance Minister Yanis Varoufakis returned empty-handed from a tour of European capitals in which even left-leaning governments in France and Italy insisted Greece must stick to commitments made to the European Union and IMF and rejected any debt write-off.

The Athens official made clear that the new government, which came to power on a wave of anti-austerity anger in elections last month, now wanted to forego remaining bailout money that had austerity strings attached:

"Greece is not asking for the remaining tranches of the current bailout programme - except the 1.9 billion euros that the ECB and the EU member states' central banks must return."

Euro zone finance ministers will discuss how to proceed with financial support for Athens at a special session next Wednesday ahead of the first summit of EU leaders with the new Greek prime minister, Alexis Tsipras, the following day.

However, the chairman of the finance ministers said the following meeting of the Eurogroup on Feb. 16 would be Greece's last chance to apply for a bailout extension because some euro zone countries would need to consult their parliaments.

"Time will become very short if they (Greece) don't ask for an extension (by then)," said Jeroen Dijsselbloem.

The current bailout for Greece expires on Feb 28. Without it the country will not get financing or debt relief from its lenders and has little hope of financing itself in the markets.

NO PROGRESS SO FAR

Participants said no progress was made at a preparatory meeting of senior finance officials in Brussels on Thursday because Greece and its euro zone partners were so far apart.

"It was Greece against all others, basically one versus 18," one official said.

Athens' partners broadly lined up in support of a hardline German document rejecting any roll-back of reforms or commitments made by previous Greek governments.

Tsipras and his ministers promised in their first days in office to raise the minimum wage, re-hire some sacked government employees and stop some privatisations.

This clashed with conditions set by the IMF and euro zone countries, which have lent Athens a total of 240 billion euros ($270 billion).

The ECB raised the stakes this week by deciding to bar Greek banks from using Greek government bonds as collateral to borrow from the central bank as long as there is no prospect of an agreed bailout programme.

That makes lenders dependent on more costly emergency liquidity from the Greek central bank, which the ECB can stop at any time.

Greek bank shares fell further on Friday at the end of a week of wild swings, as brokers cut their forecasts on worries over dwindling deposits and brinkmanship between Athens and its creditors.

Ratings agency Standard & Poor's added to Greece's discomfort by cutting its long-term sovereign debt to 'B minus' from 'B', citing liquidity constraints weighing on Greece's banks.

Portugal, which emerged from its own EU/IMF bailout last year, joined the chorus of countries insisting that Greece must stick to the austerity medicine as Lisbon had done, pay its debts, and respect past agreements with EU partners.

NOT THE EASIEST ROUTE

Economy Minister Antonio Pires de Lima told the Reuters Euro Zone Summit that Lisbon had chosen a route "which was not the easiest one" to recover credibility and return to growth, and "that is also our attitude to the situation in other countries".

Varoufakis was expecting tough treatment from his partners at next Wednesday's meeting.

"It's expected, obviously there is pressure as part of a dynamic situation, we are in a negotiation. But we believe that we will reach a mutually beneficial solution soon," said a separate official from the prime minister's office.

Before then, Tsipras will deliver a policy speech to parliament on Sunday and seek a vote of confidence on Tuesday, which he is likely to win easily.

Euro zone officials say Greece is free to design its own reforms in line with Syriza's campaign promises, as long as the result is in line with commitments to stronger public finances, debt repayment and reforms.

Time to reach a deal is short. Some analysts say Greece could run out of cash as early as March without further euro zone help.

"Greece's financing needs over the next five years may amount to 30-35 billion euros," Italy's Unicredit bank said in a research note.

"However, if we set the primary surplus at 1-1.5 percent of GDP and assume that privatisations will stop, as requested by the Greek government, overall financing needs would rise to 60 billion euros," Unicredit said.

Both Goldman Sachs and Deutsche Bank said their base case was that Greece would remain in the euro zone, but a rise in deposit outflows had raised the risk of a crisis.

(Additional reporting by Jeremy Gaunt and Costas Pitas in Athens and Lionel Laurent in London; Writing by Paul Taylor and Jeremy Gaunt; Editing by Giles Elgood, Kevin Liffey and Toby Chopra)


Greece and the ECB: The Enforcer

How the European Central Bank can dictate terms to the Greek government

Feb 7th 2015
The Economist

AS PART of his campaign to present a more conciliatory face to Greece’s European creditors, Yanis Varoufakis, the new Greek finance minister, dropped by the European Central Bank (ECB) in Frankfurt on February 4th. He met Mario Draghi, its president, in an encounter Mr Varoufakis described as “fruitful”. But there are sweet fruits and bitter ones. After his visit, the ECB’s governing council served up a bitter variety by deciding to make life tougher for Greek banks, already beset by big outflows of deposits. The decision was a warning shot to the new government over its unwillingness to abide by Greece’s bail-out arrangements.

When banks borrow from the ECB, they must provide eligible collateral. As a result of this week’s decision, from February 11th Greek banks will no longer be able to present bonds that have been issued or guaranteed by the Greek government. Their ability to do so until now, in spite of the fact that junk-rated Greek debt is not strictly eligible, has rested on a waiver of the ECB’s rules. That waiver has in turn depended upon the Greek government’s compliance with the terms of a rescue undertaken by the euro area and the IMF. The ECB’s council has rescinded the waiver on the grounds that is no longer possible to assume a successful conclusion of the review of that programme.

The ECB’s decision brings forward something that would have occurred anyway at the end of February, when the bail-out programme is due to expire unless the Greek government requests an extension (something Mr Varoufakis has said it will not do). A separate decision taken a year ago would have had a similar effect on bonds issued by banks and guaranteed by the Greek government, which make up a much larger part of the collateral the banks have been using to borrow from the ECB.

The ECB’s decision means that Greek banks will soon become much more reliant upon “emergency liquidity assistance” (ELA). Normally, ECB loans are subject to risk-sharing among the euro zone’s 19 national central banks. In exceptional circumstances, however, a national central bank can lend to banks that have run out of suitable collateral, at its own risk and at higher rates of interest. This is ELA. Although national central banks can instigate its use, the ECB must be informed, and can restrict it if two-thirds of the governing council decide that is warranted.

Greek banks are therefore suffering a double blow. The uncertainty caused by elections and a change in government has prompted big deposit outflows, of €4.4 billion ($5.4 billion) in December and more than twice that in January. To make up for this, banks have had to borrow much more from the ECB. But now they have much less eligible collateral available.

The growing reliance on ELA makes the banks, and thus the Greek government vulnerable.

According to Karl Whelan, an economist at University College Dublin, the ECB has great discretion over how much ELA to permit and when to withdraw it. So Greek banks’ growing dependence on ELA leaves the government at the ECB’s mercy as it tries to renegotiate its bail-out.

The ECB has form. In 2013 it announced that it would stop authorising the extension of ELA to Cypriot banks within days unless Cyprus entered a rescue programme to ensure their solvency. That forced the Cypriot government to accept a controversial bail-out programme. A threat to cut off ELA also forced Ireland into a rescue programme in 2010. Even a decision to cap ELA could have a dramatic effect, since it would be likely to trigger capital controls and limits on withdrawals from banks. Mr Varoufakis may be a specialist in game theory. Mr Draghi has had actual practice.


Wall Street Ends Down on Interest Rate, Greece Jitters

February 7, 2015 12:00 AM
Pittsburgh Post Gazette

NEW YORK — Wall Street stocks fell Friday as a better-than-expected U.S. jobs report raised expectations that the Federal Reserve will increase interest rates by midyear, while renewed worries over Greece’s debt negotiations added to the bearish tone.

The S&P 500 index of utilities, often used as a bond proxy by investors in a low-rate environment, fell 4.1 percent, its biggest daily drop since August 2011, as U.S. government debt yields jumped.

In another sign of concern about interest rates, Simon Properties, a real estate investment trust, sank 4 percent at $195.08.

But the financial sector, which tends to benefit from rising interest rates, rose 0.7 percent.

Still, all three major indexes registered strong gains for the week, with the Dow industrials rising 3.8 percent for its biggest weekly gain since January 2013.

Nonfarm payrolls increased more than expected in January and wages rebounded, while employment numbers for November and December were revised sharply higher, the U.S. Labor Department reported. The unemployment rate ticked up to 5.7 percent as a result of an increased labor force.

After the report, traders added to bets that the U.S. central bank will start to hike interest rates by midyear.

“With the stronger-than-anticipated employment report, there’s discussion the Fed might move earlier rather than later … so we’ve seen the financial sector do well and the interest rate-sensitive utilities sector do poorly,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Ala.

Adding to that, “the negotiations on the Greek debt weighed on the market this afternoon,” he said.

Eurozone finance ministers are waiting to hear Wednesday how Greece wants to become financially independent, the chairman of the ministers said. Greece must apply for a bailout extension by Feb. 16 at the latest to ensure that the eurozone keeps backing it financially, the Eurogroup chairman told Reuters.

The Wall Street Journal on Friday said Greece was rebuffed by lenders for $5 billion in short-term debt; the country is facing a cash crunch because the EU wants more overhauls.

The Dow Jones industrial average fell 60.59 points, or 0.34 percent, to 17,824.29; the S&P 500 lost 7.05 points, or 0.34 percent, to 2,055.47; and the Nasdaq Composite dropped 20.70 points, or 0.43 percent, to 4,744.40.

For the week, the S&P 500 was up 3 percent, its best weekly gain since December, while the Nasdaq was up 2.4 percent.

About 7.7 billion shares changed hands on U.S. exchanges, compared with the 7.9 billion average for the last five sessions, according to data from BATS Global Markets.

Among the day’s gainers, Twitter jumped 16.4 percent to $48.01 after any earnings report Thursday that beat Wall Street’s profit and revenue targets in the fourth quarter.

Declining issues outnumbered advancing ones on the New York Stock Exchange by 1,961 to 1,128, for a 1.74-to-1 ratio on the downside. On the Nasdaq, 1,458 issues fell and 1,260 advanced for a 1.16-to-1 ratio favoring decliners.

The benchmark S&P 500 index posted 43 new 52-week highs and two new lows; the Nasdaq Composite recorded 99 new highs and 26 new lows.

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