By Delusional Economics, who is horrified at the state of economic commentary in Australia and is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.
European markets were lead by Greek equities which were up 6.8%, attempting a bounce last night on the news that:
Greece’s conservatives have regained an opinion poll lead that would allow the formation of a pro-bailout government committed to keeping the country in the euro zone, a batch of new surveys showed on Saturday.
I’m not too sure why this is such good news, Greece is in deep trouble either way and it would take a person with a serious short term memory problem to forget what has already happened to Greece under the existing programs. Either way, the campaign by New Democracy appears to be clawing back voters leading to a response from the left:
Alexis Tsipras, the head of the Coalition of the Radical Left (SYRIZA) the surprise second-place finisher in stalemated May 6 elections is swinging back. He is locked in a neck-and-neck duel to win the next elections. He accused New Democracy leader Antonis Samaras and PASOK Socialist leader Evangelos Venizelos of trying to frighten Greeks into voting for them with horror stories of a complete economic collapse and anarchy if Greeks support him and other anti-austerity parties that won 68 percent of the vote in the first elections. Tsipras accused “domestic political forces” of “blackmail, threats and lies,” and with scaremongering.
Samaras said SYRIZA’s intention to repudiate Greece’s loan agreement, or memorandum, with the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) could lead the country out of the euro. “A return to the drachma would lead to incomes, savings and assets being halved, while debt would grow,” Samaras told party members at an ND national congress in Athens. “Tsipras will bring a worse memorandum that will serve the drachma lobby, which will be able to buy up the country on the cheap.”
Although Samaras is stating that he supports the existing programs he is actually suggesting that he will re-negotiate the deal. This in itself appears to be wishful thinking, but some his other promises appear outright delusional:
A New Democracy victory in the June would see the party halt the rise in unemployment by the of 2012 and reduce jobless levels to the same rate as in 2009 within two years by creating “hundreds of thousands of new jobs,” Samaras said.
The party’s recovery program for the Greek economy would be to absorb European funds and emphasize liquidity for small and medium-sized companies, he said. Samaras repeated a pledge for no further cuts in wages and pensions, and not to introduce new taxes.
Call it campaigning if you like, but these undeliverable promises highlight to me that Greece is in deep trouble either way and there is little to celebrate even if the centre wins the next election. In the meantime Greek banks received a proportion of the re-capitalisation funds promised under the latest bailout in the form of EFSF bonds that they can “cash in” with the ECB:
Greece’s bank support fund on Monday disbursed 18 billion euros to the country’s four biggest banks as a part of a long-planned recapitalisation effort, a fund official said.
“The funds have been disbursed,” the official at the Hellenic Financial Stability Facility, who declined to be named, told Reuters.
The injection – via bonds from the European Financial Stability Facility rescue fund – will boost the capital base of National Bank, Alpha, Eurobank and Piraeus Bank, allowing them to regain access to European Central Bank funding.
Greek banks already have €125 billion euros in loans from the ECB including €54 from the Emergency liquidity program ( ELA ) via the Greek national bank. Given recent trends the €18 billion is likely to make its way out of Greece towards to core over the next few months meaning the Greek banks will be back asking for more funds. Please see this post for more on that point.
Moving on from Greece we also saw a press conference by the Spanish PM, Mariano Rajoy, in which he gave a very confused report on the state of Spain’s current crisis:
“There are major doubts over the euro zone and that makes the risk premium for some countries very high. That’s why it would be a very good idea to deliver a clear message there’s no going back for the euro,” Rajoy told a news conference.
“There will not be any (European) rescue for the Spanish banking system.”
Rajoy went on to say that Spain must continue to bring down its deficit, but is struggling to finance itself at sustainable levels because of the high risk premiums involved. He also stated that there must be clear and decisive action and Europe needs to move forward with monetary and fiscal integration which would clear up the doubts about the future of the Eurozone. He once again repeated that although his country was struggling it wouldn’t need a bailout, but also stated that he he wanted the the European Stability Mechanism to be allowed to lend directly to banks.
The trouble is that the Spanish government’s fund to support bank restructuring only has €5.3bn, and Bankia, which already requires nearly €24bn, is not the only bank that will need support. The most notable are CatalunyaCaixa and NovaGalicia which were nationalised by the Spanish government in September who have recently stated that they want addition capital. The Spanish government has ordered an audit of the banking system which will be delivered in June, but the some of the bad news is already being reported:
BFA, the parent group of nationalized Spanish bank Bankia, said on Monday it had restated its 2011 results to reflect a 3.3 billion euro loss, rather than a 41 million euro profit, following a bailout from the state.
In a statement to the stock exchange regulator, BFA said the restated loss reflected a review of its loan portfolios and capital needs after a new audit and as part of the clean-up plan implemented by the government.
Although Mr Rajoy claims there is no requirement for a bailout he has been very vocal with calls for the ECB to do more to support Spanish debt. That appears to have fallen on deaf ears, as the latest stats from the ECB show that the SMP lies dormant.
Spanish yields were up again after the press conference and are now approaching the highs of last November. Against Mr Rajoy’s insistence it would appear that a bailout is coming.