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In Greece, it’s not a “bank walk” but really a “bank run”

After midnight in Athens, Greek Prime Minister Alexis Tsipras called a referendum on July 5 on whether he should accept the latest demands of its creditors. In the meantime, Greek officials announced that banks will remain open on Monday and they don’t plan Capital Controls.


The only problem is that people know the referendum increases the probability of a Grexit in coming weeks as suggested by the latest quotes on Betfair (see below).



In this context, according to different sources on tweeter, Greek people really run to ATMs in order to withdraw their banking deposits. As a consequence, if the ECB is not ready to offer more liquidity to Greek banks, a major crisis including bankruptcies, is not excluded.



What’s the Real Dedaline for Greece After Talks Failed on Sunday?

According to Bloomberg, a person familiar with the matter said that Greece’s hopes of sealing an accord with its creditors by the end of May dimmed on Sunday, as disagreements between the two sides on budget targets persisted.


The raid from Greece’s own reserve account at the IMF to make a recent payment to the fund suggests the Syriza-led government is running out of cash to pay its creditors and, in the absence of additional bailout funds, will be unable to make this payment its next payment to the IMF on June 5 for E312mln. However, this would not necessarily trigger an immediate default, but instead a grace period of one month according to an IMF document titled “Review of the Fund’s Strategy on Overdue Financial Obligations”. Below is a timetable of events:


***The IMF staff “immediately” send a cable urging the member to make the payment promptly; “this communication is followed up through the office of the concerned Executive Director. The member is not permitted any use of the Fund’s resources nor is any request for the use of Fund resources placed before the Executive Board until the arrears are cleared.”


***Two weeks: Management sends a communication to the Governor for the member stressing the seriousness of the failure to meet obligations and urging full and prompt settlement.


***One month: The Managing Director notifies the Executive Board that an obligation is overdue.


Therefore, it appears the real issues for Greece regarding default begins 1-month after non-payment when the IMF Managing Director notifies the Executive Board that an obligation is overdue and then the EFSF may also cancel as it “deems appropriate the whole or any part of the undisbursed amount.” According to the Master Financial Assistance Facility Agreement between the EFSF and the Hellenic Republic:


“In case the IMF cancels the IMF Arrangement, any other Financial Support Provider cancels in whole or in part any support facility entered into with, or in respect of, the Beneficiary Member State or EFSF cancels any of the facilities provided by EFSF…In this case the cancellation of a Facility shall be proportionate to (a) in the case of cancellation by the IMF, the proportion which the sum cancelled represents to the aggregate initial amount of such IMF Arrangement and (b) in the case of cancellation of any of the other facilities, the proportion which the cancelled amount represents to the aggregate of the initial amounts of this Agreement and each of the facilities provided by EFSF and each of the other Financial Support Providers.”


Note that several newspapers note that IMF policy allows Greece to bundle the four payments due in June and make them together at the end of the month, though the practice is rare. Nevertheless, IMF spokesman William Murray said that Greece hasn’t requested that bundling.

ECB QE Amount came Above Expectations with Low Risk Sharing and Legal Headwinds

The ECB unveiled a bigger than expected QE plan that will involve buying €60B a month including government bonds, covered bonds and ABS but excluding corporate bonds. The program scheme will begin in March and last until the end of September 2016; or “until the ECB sees a sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2 per cent”. Therefore, it implies at least €1140B of purchases (19 x 60) so that the ECB balance sheet will exceed its 2012 top level in Sept. 2016 (previously than investors expected).




Assuming €10B a month of  ["covered bonds" + "ABS"] purchases, it implies €50B/ a month of sovereign bonds. In other words, in 2015, sovereign purchases should reach €500B which is almost 56% of Eurozone gross issuance and 2.3 times the net issuance. Through September 2016, the total amount of sovereign purchases would rise to €950B and will be based on the Eurosystem NCBs’ shares in the ECB’s capital key (and won’t exclude Greece).  Note that for Germany, the table shows that purchases through the end of 2015 will reach €129B which is more than 20 times the amount of the net issuance scheduled for 2015.



Moreover, the maturities of sovereign bonds purchased will range between two and 30 years and could offer negative yield.


However, after strong pressure from German and Dutch officials, national central banks will assume most of losses from any default or restructuring of their national debt, breaking with the tradition set by previous sovereign bond-buying schemes. There will be risk-sharing on only 20% of the assets, largely debt issued by European institutions bought by national central banks.


Finally, also on the negative side, the ECB QE is already facing legal headwinds in a context where the FT reported that:


Peter Gauweiler, a conservative MP who has launched multiple legal actions against the common currency, announced on Thursday that he had instructed a law professor to prepare a case against the QE programme.”

While government ministers refrained from comment, Werner Langen, a leading European Parliament member of Chancellor Angela Merkel’s conservative CDU, went on morning television to attack QE, saying: “This is wrong, it does not help, it is not the right instrument [ to aid economic recovery]. The ECB has reached the end with its monetary policy.”


Moreover, within minutes of Draghi’s announcement, deputy chancellor Hans Michelbach asserted that the ECB was “violating its mandate” while several hours later, Ifo economic institute President Hans-Werner Sinn says ECB’s bond-buying decision is “illegal and unsound state financing through the money-printing press.”


All in all, Draghi reassured investors by choosing both a monthly and a total amount above the consensus, including Greece and a large choice of maturities. Separately, in order to ease pressure from German and Dutch officials, he decided to cap risk-sharing on only 20% of the assets. However, it’s clear that it’s not sufficient and the QE is far from being implemented.

Greece Will Make a Primary Surplus in 2013 as “Summer Season” Keeps its Promises

After beating significantly budget targets in Jan-July period with a a primary budget surplus of about 2.5 billion euros against an interim target for a deficit of 3.1 billion for the period, a report coming from Kathimerini suggests that August revenues give reason for gov’t hope to achieve a primary surplus in 2013.


More from Kathimerini:


Budget revenues were up by about 120 million euros, or 11 percent, in the first 20 days of August, compared to the same period last year, giving the government cause for optimism.
As the monthly target is 3.9 billion euros, when 4.8 billion was collected in August 2012, ministers believe that at the same rate of collection the monthly target will be overshot by 300-400 million.
The encouraging signs this month are that income tax inflows are 50 percent higher than last year, taxes on deposit interest are up 41 percent, VAT is also up – mostly due to heightened activity in tourism – and car sales are markedly higher.


As a consequence, Greece should make a primary surplus in 2013 and will get at least a third aid program in 2014. We can also expect a debate on a potential haircut after the German election (September 22nd).