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Further News
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The two important developments this morning are an important concession the Greek government will make in its submission to the euro working group (EWG) today, and the news of yet another extension of the ELA - enough to tie Greece over to next week.
Kathimerini has the details of what the government is planning to submit to the EWG this morning. Greece will formally request an extension of the Master Financial Assistance Facility Agreement (MFAFA). That facility states explicitly that assistance would depend on compliance with the Memorandum. The article says the same request was made by the Samaras government in December when it asked for a two-month “technical extension” of the existing MFAFA, which is the same wording as the Syriza administration will use now, according to this article, which says that this should address the German insistence that the deal has to be within the existing legal framework. (please see our next story, which has some further technical details on the MFAFA.)
But there is more to it. This is just words, there is no change in any of Syriza’s substantive positions. The article notes that the reaction in Brussels is cautious, especially on what is regarded as a unilateral rollback of decisions agreed in the memorandum. There was also annoyance with the decision by Yanis Varousfakis to publish the papers of the last two eurogroup meetings - seen in Brussels as an attempt to drive a wedge between the Commission and the Council.
The German press reaction is universally hostile - as bad we have ever seen it. Frankfurter Allgemeine writes that the Greeks are deliberately confusing everybody, citing sources from inside the Commission. The Commission yesterday went out of its way to signal that its position is aligned with that of the eurogorup.
The Germans are insisting on five key points on which they are not prepared to compromise:
1. No turning back of reforms;
2. new measures only in co-ordination with troika (or whatever the name may be);
3. commitment to repay all credits;
4. commitment to continue to work with troika (or whatever the name may be);
5. commitment to conclude the existing programme.
The FAZ article quotes a central banker as saying that Grexit was now the most likely scenario.
The ECB, meanwhile, voted to increase the volume of ELA from last week’s level of €65bn to €68.3bn - which is less than the €10bn asked for by the Greek central bank. The Greeks have already withdrawn €20bn of their deposits. As Federico Fubini notes in La Repubblica this morning, in the absence of a deal this week, this will only last until early next week. He also notes, ominously, that in his assessment the ECB will have discussed the implications of the Grexit, and how to avoid contagion. FAZ writes that there was a debate in the ECB of how to prevent that the ELA would be misused for the purpose of monetary financing.
Macropolis has the details, with analysis, of the leaked Varoufakis papers. Varoufakis was ready to fulfil the three following conditions:
The document goes into much detail about the both the interim and the long-term plan.
On debt sustainability: A 4.5% primary surplus would wipe out all of Greek debt by 2050. The current debt-GDP ratio of 175% does not describe the actual burden because 75pp of the total (the EFSF loans) do not need to be serviced until 2023, have a maturity of 39 years, with an i/r of 2.5%. The bilateral loans have an i/r of only 0.65% with a final maturity in 2041. On the assumption of a 5% discount rate, this makes for an NPV of 133% of GDD. Under the assumption of a primary surplus of 1.5%, instead of 4.5%, the debt ratio in NPV terms would reach 120% in 2020.
On the 2015 funding needs, Varoufakis outlined revenue increases of €5.5bn from the fight against corruption and tax evasion, control of transfer pricing, a reform of the collection of arrears, and progressive taxation. To cover the funding needs, he is proposing the use of extended T-bills and the release of unused resources from the bank restructuring fund (HFSF).
There is more in the document on privatisation revenues.
And finally, the Greek parliament voted for Prokopis Pavlropoulos as president with 233 out of 300 votes.
A couple of observations: there is a huge gap to be bridged - and it is hard to see agreement without a major climbdown by one (or both) sides. The Greek acceptance of the legal languages appears to be progress - but we do not really see what difference it makes if the substantive positions remain unaltered.
On the debt sustainability calculations: We would dispute a 5% discount rate. With negative inflation - and inflation expectations unanchored - and very low growth rates, we think that a discount rate of 1-2% is a more realistic reflection of the eurozone's stagnating future. Smoke and Mirrors
Gabriele Steinhauser and Viktoria Dendriniou debunk this whole business about the difference between an extension of the MFAFA and what the Greeks call the loan agreements. It’s all smoke and mirrors, they write.
Now the MFAFA expires Feb 28. The MoU needs no extension as it has no expiry date, but it nevertheless forms an integral part of the MFAFA.
We noticed a couple of comments. Simeon Djankov argues that Syriza is miscalculating by believing that European leaders will blink first. The opposite is happening. The nature of the miscalculation lies in Syriza's misjudgement of the position of other periphery countries, which have undergone austerity measures.
And finally, there is an extraordinary frank comment by Klaus Kastner, who describes the German inferiority complex vis-a-vis the Greeks in a very personal column, citing his own experiences. We would not do it justice to summarise it. Well worth a read.
On Simeon Djankov: One of the things they teach you in journalism school is that you should never presume to know what people are actually thinking. All we know is what Tsipras and Varoufakis are saying. Hence, it would be hard to infer that they are miscalculating. They may well have anticipated the current situation. It may well be the case that they are prepared for Grexit, or even seek it, but just want the eurozone to be seen as pushing them out. If that were the case, they would not be miscalculating. What we can say is that the attempt at trying to isolate Germany clearly failed.
So much for recouping unpaid taxes
Macropolis has an article on how the Greek government is trying to recoup €3bn in unpaid taxes this year. We are going to spare you the unpleasant technical details. Here are some markers. Unpaid taxes stood at €76bn as of January 2015. Of those, 39% are pre-2009. The amount of recoverable taxes is put at just €9bn. The article notes that Syriza had previously expected to recoup more than €20bn - so this is a big dent. The government is saying that the new estimate is based on hard data, while Syriza's number was based on estimates. A bill on the settlement of unpaid taxes is to be tabled in parliament next week. It will also remove the €1m cap.
We know this from Italy. Each year the government budgets some mysterious forthcoming revenues from the fight against tax evasion. The reality is usually sobering. Greece needs to tackle tax collection and tax evasion urgently. But the revenues from these operations are bound to undershoot the target. Best not to budget them, and treat revenues as windfall gains.
EU seeks to relax securitisation rules
The FT has the story that Lord Hill is to propose regulation to relax some of the restriction on ABS, notably the "skin-in-the-game" requirement that forces banks to share the risk of securitisations. The measures to be announced include an easing of capital requirements for banks and insurers, and cutting red tape for ABS issuers. This deregulation would go some way to address concerns that the market had been suffocated due to over-regulation. Issuance was only to €216bn in 2014, compard with €594bn in 2007. Any regulation would take about two years to implement - so this is not going to be a quick fix.
French government faces confidence vote today
The passage of the Macron law might have been secured with the French government invoking article 49-3, but the political consequences are less clear. We now have a situation where the conservative UMP put in a motion of confidence to object against a bill that they are actually in favour of, while the Socialist rebels are expected to support the government in today's vote of confidence - though they object against the law, observes Cecile Cornudet. It definitely puts the government in a weak position, especially with other more controversial reform plans still in the pipeline. It highlights the rift in the Socialist party between the supply-side reformers and state interventionists ahead of the party congress in three months. The Socialist rebels, the frondeurs, already cry wolf and call for the resignation of Manuel Valls, according to Les Echos.
The other problem is that 49-3 emergency override clause can only be used once per year for a legislative measure other than the budget and the social security law after its revision in 2008, according toLiberation. This means that future reforms can be taken hostage by the same rebels. The next test will be the labour market law that could be debated as soon as this summer, writes the FT. It will include the easing of rules governing worker representation in smaller companies and more flexibility for companies in setting working hours and salaries.
There is a lot in the press on whether or not it was a good thing to invoke article 49-3. To put things into perspective, the use of the 49-3 article has some track record in the past. Since 1975 all 15 prime minsters except three (Francois Fillon, Jean-Marc Ayrault and Lionel Jospin) made use of this procedure, according to Le Monde. Raymond Barre for example has used the 49-3 procedure in similar circumstances eight times between 1976 and 1981 to fight against the constant pressure from Jacques Chirac's RPR deputies, who each time accepted the enforcement of the law instead of allying with François Mitterrand's PS deputies. But it is the first time in the V Republic that a Socialist government has invoked 49-3, and surprising that it was Manuel Valls, who himself had called for the abolition of the article in 2008, according to an AFP journalist. Today's problem however is that the article was used for such a modest reform and that future reforms will become more difficult.
Observers outside France might be surprised that such a 'modest' reform proposal, which among other measures shortens labour arbitration procedures and deregulates intercity coach services, produces 200 hours of debate, with 1000 amendments adopted. It seems ironic that in a secular country such as France one of the most ferocious debates is about increasing the number of Sunday hours shops can open from 5 to 12. But it is symbolic of a much more fundamental debate, between pro-reformers and state interventionists, which is likely to be played out at the party congress in three months.
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Donnerstag, 19. Februar 2015
Greece accepts wording of programme extension
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