Why Greece's spillover across euro area will probably be contained this time

[grubb]

An interesting read on the topic. I like the statement, "Every (advanced) country has realised that making capitalism work requires giving individuals a fresh start."

Yes, I agree on the "fresh start". The privilege of a fresh start, shouldn't come, before exhausted the means to protect the right of creditor, IMO. I reckon this is what the bankruptcy act is doing...

You Say Debt Relief, I Say Theft

As someone who sides with Germany in the matter of Greek debt, I often hear that creditors should be held culpable for driving deadbeats like Greece to the brink of bankruptcy. That's true to an extent, but not when the debtor is a government. Nation-states have confiscatory powers that allow them to do to their creditors what medieval kings did to their Jews. It's a big mistake to pretend that a country like Greece is more vulnerable than it really is.

Nobel prizewinning economist Joseph Stiglitz eloquently described the concept of lenders' fault in a recent column:

Debts are contracts -- that is, voluntary agreements -- so creditors are just as responsible for them as debtors. In fact, creditors arguably are more responsible: typically, they are sophisticated financial institutions, whereas borrowers frequently are far less attuned to market vicissitudes and the risks associated with different contractual arrangements... Every (advanced) country has realised that making capitalism work requires giving individuals a fresh start. The debtors’ prisons of the 19th century were a failure -- inhumane and not exactly helping to ensure repayment. What did help was to provide better incentives for good lending, by making creditors more responsible for the consequences of their decisions.
...
http://www.bloombergview.com/articles/20...-say-theft

The author has a flawed understanding of how global imbalances work and how the balance of payments has come to create the crisis. Historically, excessive capital flows have caused bubbles in the recipient country. To say that Germany is not responsible when it stubbornly ran surpluses and then recycled the capital to countries like Greece which sparked their asset bubbles is an ignorant statement IMO.

[CityFarmer]

China is always the alternative, after a tough time with "conventional" fund sources...

Greek deputy PM to visit China amid financial crisis

EIJING (AFP) - Greek deputy prime minister Ioannis Dragasakis will visit China this week, Beijing's foreign ministry announced Monday, as concerns over the cash-strapped country's financial crisis intensify.

Mr Dragasakis will visit China from Wednesday to Saturday at the invitation of Chinese Vice-Premier Ma Kai, foreign ministry spokesman Hong Lei said at a regular briefing. Mr Hong provided no further details.
...
- See more at: http://www.straitstimes.com/news/world/e...gdrT5.dpuf

[greengiraffe]

Little tragedy in a Greek exit
851 words
2 Apr 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.

With Athens once again locked in tense negotiations with its lenders, investors are becoming increasingly concerned that global markets could be plunged into a period of uncertainty if Greece is forced to quit the eurozone.

Greece's international creditors - the International Monetary Fund, the European Central Bank (ECB) and the European Union - are demanding that Greece implement reforms before they unlock billions of euros remaining from the nation's last bailout program. Without fresh funding, Athens risks running out of cash within weeks.

Investors are worried about the impact on financial markets if the radical leftist Greek government is unable to come up with a list of reforms acceptable to its own supporters and to its international creditors, leaving the country with no option but default and an exit from the eurozone - a Grexit.

Shane Oliver, AMP's head of investment strategy, is sanguine. "If Greece does leave, I think the impact on the rest of Europe will be relatively minor," he says. "Europe is in a far stronger state than it was during the eurozone debt crisis of 2010-2012."

He points out that in the other peripheral countries - such as Portugal, Ireland and Spain - budget deficits have peaked, public debt levels appear to have peaked and many of these countries have reformed their labour markets and become much more competitive than two or three years ago. "Indeed, some of them are well on the way to economic recovery," he says.

Another key difference, he says, is that the ECB has launched a large quantitative easing program and is buying the bonds of eurozone countries, including the peripherals.

"Even during this latest spate of nervousness about Greece, bond yields in countries such as Spain and Italy have collapsed. That shows investors are happy to lend to these countries and that, even if Greece does leave the eurozone, they don't see any risk other countries will follow, and that their loans would be paid back in devalued currencies." As a result, Oliver believes investors shouldn't be too worried. "If Greece does leave the euro, I would see it as a buying opportunity."

He argues that European shares offer better value than their US counterparts. "European valuations on a whole range of measures are quite cheap compared to the United States, and indicators such as business confidence, consumer confidence and bank lending are looking a lot healthier.

"So far this year, European share markets have risen by more than 15 per cent, while the US share market is virtually flat. So Europe has gone from being the laggard to being the leader."

David McDonald, chief investment strategist at Credit Suisse Private Banking Australia, agrees a Greek exit should be seen as a buying opportunity.

"Our base case is that Greece will stay in the eurozone, but we also think the chances of something bad happening, which could cause a Grexit, have increased." If Greece is able to reach an agreement with its creditors, he says, "that's obviously a good outcome because we like European equities".

But if Greece is forced to leave the eurozone, there's likely to be a short-term blip which would hurt European bonds (particularly those of the peripheral countries) as well as European equities. Even if Greece did leave, McDonald says, it wouldn't be a catastrophe for Europe. "Countries such as Spain, Portugal and Ireland have already undertaken a lot of reform and so there's not likely to be any form of contagion."

So what should investors do?

"Watch it closely, definitely, because even if you don't think there will be major long-term implications, in the short term markets could go to a 'risk off' position, with an increase in volatility", McDonald says. "Although this will be most pronounced in Europe, it could also affect other markets as well. And if that happens, it perhaps represents an opportunity to add to your portfolio of European equities - we particularly like Germany."

Matt Sherwood, Perpetual's head of investment market research, says if Greece does leave, "there will undoubtedly be market volatility, but the key question is how long it lasts".

If the ECB is able to effectively manage the process, "the chances of an extended downturn are reduced". He points out some European banks would have to be recapitalised as their Greek exposures would need to be written down to zero. "But most of Greece's debt is now owed to institutions such as the International Monetary Fund and European Central Bank."

Sherwood predicts that a Grexit would result in "volatility for a period of three to six months, but markets would eventually stabilise. And there would be some upward pressure on the euro, all other things being equal, because some of the lead would have been lifted out of the euro's saddlebag."

But, he says, "it's unlikely that the new government will ultimately decide to default on its debts. Instead it's more likely that, once again at the 11th hour, Greece will submit to the demands of its creditors."


Fairfax Media Management Pty Limited

Document AFNR000020150401eb420002j

[greengiraffe]

http://www.cnbc.com/id/102588592

EUROPEAN CENTRAL BANK
Greece's troubles are 'urgent', and it can only save itself: ECB's Draghi
Gemma Acton
5 Hours Ago
Breaking News

Ralph Orlowski | Reuters
European Central Bank President Mario Draghi speaks at a news conference in Frankfurt, April 15, 2015.
European Central Bank president Mario Draghisaid on Saturday that Europe is rooting for Greece to resolve its problems, but the Hellenic Republic is the only party that can save itself.

Greece is struggling to manage a financial crisis, and requires a major cash infusion to meet looming debt obligations without defaulting. Against that backdrop, Draghi told reporters that "We all want Greece to succeed."

However, he hinted that Greek officials were running out of time to strike a deal with creditors and prevent a worsening of the crisis. "The answer is in the hands of the Greek government," Draghi added.

At the International Monetary Fund's spring meeting in Washington, Draghi said that Emergency Liquidity Assistance (ELA) support would continue for as long as Greek banks remained solvent, and they had sufficient collateral.

He said that Greece would need to continue substantive dialogue with its creditors, the key to ensuring that Greece was able to avoid default. The latter scenario is something Draghi stated flatly that he did not wish to contemplate.

Read More ECB's Draghi shrugs off Greece, bond bubble fears

The ECB chief said the central bank wanted to see economic growth, fairness, fiscal sustainability and financial sustainability happen in the country. Still, he added that "much more work is needed," and it was "urgent" that Greece move to address festering concerns.

Regardless, Draghi added the Eurozone is now in a better place to fend off the short-term danger of contagion from Greece.

Separately, the central banker said the 12-nation currency bloc was showing tentative signs of recovery, helped by the drop in oil prices and the effects of the ECB's own loose monetary policy. However, the prospects for "vibrant growth" were still far off, he added.

We won't go back

When pressed by reporters on the subject of a "Grexit," or Greece's being ejected from or leaving the 12-nation currency, Draghi referred to a comment he made three years ago. At the time, he insisted the euro was irrevocable, and reiterated that idea on Saturday.

It would be "pointless" to bet against the single currency, Draghi said in 2012, adding on Saturday that he would "say exactly the same words today."

[Petertan]

I read that Greece is only 2% of the EU??? what i forgotten, maybe GDP, and it is too small. But market is more worry about contagion.

Maybe, if they really leave the union, it may cause a short term turmoil in the market. I do not think it will cause serious damage.

And I do not think they dare to leave. Because they will suffer years of poverty.

[greengiraffe]

Greece: bankruptcy looms as cash runs out for wages and pensions
ANTHEE CARASSAVA AND BRUNO WATERFIELD THE TIMES APRIL 23, 2015 11:23AM

Greece will go bust next week, potentially pushing the highly indebted country into default and out of the eurozone and plunging the European Union into an unprecedented crisis.

The head of the Greek treasury admitted yesterday that the government could not pay its bills, including the salaries and pensions of millions of public sector workers that are due at the end of the month.

To avoid default, Athens must pay the despised creditors of the International Monetary Fund and the eurozone before its own citizens. Such an outcome would be deeply humiliating for the leftist government, elected on the pledge to put Greeks first.

Dimitris Mardas, the deputy finance minister, said the treasury coffers were €400 million short of the €1.9 billion needed to honour payroll obligations to state employees. “We have been running on empty since February.”

At a summit in Brussels today, Prime Minister Alexis Tsipras will appeal to German Chancellor Angela Merkel for more eurozone aid and warn her that Greece is on the brink of bankruptcy and exit from the euro.

EU diplomats and officials are concerned that the left-wing Syriza government will choose to pay public sector workers rather than honour payments due to the IMF of €970 million over the next three weeks, a decision that would push Greece into default.

“There is a strong faction, including the finance minister, that will not stomach the humiliation of paying back foreign creditors while Greeks go hungry,” said a diplomatic source. “This might well be the moment it ends.”

Fears that Greece is about to go bankrupt triggered market turbulence, pushing up the cost of Greek borrowing yesterday to the same levels as at the height of the eurozone crisis in 2012. Greek banks, completely dependent on emergency support from the European Central Bank, are teetering on the brink of collapse after public bodies were forced to withdraw €2.5 billion in cash reserves to help to pay bills.

After a meltdown on the Athens stock exchange, Mr Mardas attempted to qualify his remarks, saying that the state was solvent and that the government was pursuing “alternative options”. He refused to elaborate. Shut out of bond markets, Athens will run out of cash unless it strikes a deal with foreign creditors to unlock bailout aid worth €7.2 billion.

On Monday an emergency presidential decree forced up to 1500 local government bodies to transfer cash reserves to the Bank of Greece for “urgent use” by the state. The measure was demanded by the eurozone and IMF, effectively placing the funds beyond the reach of the government, and has run into fierce resistance from mayors, who see it as an attempt to put international creditors before Greeks.

Giorgos Kaminis, the mayor of Athens, said the confiscation law was “unconstitutional” and vowed to fight it. The Union of Municipalities and Communities said in a statement on Tuesday night: “We are determined to use all political and legal means we can to repudiate the content of the decree.”

Greece could go bust as early as Friday next week, May 1, if it baulks at putting a repayment of €200 million to the IMF before paying state employees. The day is a bank holiday and could be the moment Greece informs international creditors that it cannot pay back debts and moves to introduce capital controls, nationalise local banks and issue a new currency pegged to the euro as it continues to try to negotiate.

Just 11 days later, Greece must pay back another €770 million, again to the International Monetary Fund.

Yesterday the lights went out — literally — in Greece’s biggest tax office, north of Athens, after the finance ministry failed to pay long-overdue power bills. The crisis comes as the Syriza government refuses to implement politically toxic austerity measures and as eurozone hawks, led by Germany, insist that no aid will be forthcoming until it does.

The stalemate has lasted two months, and a meeting of eurozone finance ministers in Riga tomorrow is not expected to deliver a breakthrough.

“The uncertainty is hurting Greece, badly,” said Notis Mitarakis, a conservative MP. “The country cannot continue to limp. It’s high time the government gets a grip of reality and negotiates a deal fast.”

Surveys suggest that public support for the government is waning, with four in ten Greeks disagreeing with its hard-nosed negotiating stance. The same survey shows Mr Tsipras’s popularity dropping to 45 per cent from a record 72 per cent support a month ago.

The Times

[sykn]

Wow, looks like the end of the line is very near! Great opportunity for those with plenty of dry powder to buy from the Great Singapore sale when markets react to GREXIT. This is truly the worst and best of times.

[sgd]

once greece default on payment is not their problem anymore, the problem is the people holding on to greek ious, the bondholders themselves could already be leveraged to their eyeballs back stopping the greek debt will there be a run on them too?

[Petertan]

once greece default on payment is not their problem anymore, the problem is the people holding on to greek ious, the bondholders themselves could already be leveraged to their eyeballs back stopping the greek debt will there be a run on them too?

You are wrong. If like that everyone can simply borrow huge amount of money and then declare cannot pay. Where got so simple?

If they do that, immediately the next morning when they wake up, they will find themselves in the toilet for the next 15 years. And their currency will be like unto toilet paper for the next 15 years.

If you think it is easy, try to borrow from the bank and do likewise, see what happen?

[sgd]

once greece default on payment is not their problem anymore, the problem is the people holding on to greek ious, the bondholders themselves could already be leveraged to their eyeballs back stopping the greek debt will there be a run on them too?

You are wrong. If like that everyone can simply borrow huge amount of money and then declare cannot pay. Where got so simple?

If they do that, immediately the next morning when they wake up, they will find themselves in the toilet for the next 15 years. And their currency will be like unto toilet paper for the next 15 years.

If you think it is easy, try to borrow from the bank and do likewise, see what happen?

If you a bank or money lender lend money to a king, he play you out later don't pay you what you can do to him? sue him? arrest him? whack him?

For individual and corporate it applies but how you force a country a government or a king to pay if they play you out? Basically either take up guns go to war or "L L"

but then again in the case of greece the lenders are already very reluctant to keep lending anyway as seen by the quantative easing they been doling out recently in preparation in case something like this happen whether are these efforts are adequate to mitigate the fallout thats comes after or not.

Yes when greece default they go to the toilet and become a financial pariah - but only for a while, a few years ago I will agree with you but today not everybody will against them there's options once they regain their currency things will stabalise within 2-3 years the russians have need of new friends and new trading partners will welcome them with open arms, then there's also China's AIIB brics bank coming online quite eager to show they can be the alternative to IMF and world bank.