Saturday, 27 June 2015

And so it came to pass. Greece part n

And so it came to pass..

that Tsipras and Varoufakis returned to Greece having been unable achieve their objective of debt forgiveness and were faced by political unrest from all sides.

I have just found  this in our unsent card drawer, it’s of a 1968 ‘Punch’ cartoon. 

This is not a huge surprise, having expressed massive disbelief at the markets' behaviour last Monday, it is reassuring to know I wasn't going mad. Before we go on, it is worth noting again who the main protagonists of immediate negotiated success were. Remember? Hollande, Sapin, Moscovici (who is still holding out hope) and anyone French. I suggested back then that they have their own self interest at heart as their own finances aren’t in the greatest of shapes. Their socialist government has already been through what Syriza is going through, but to a lesser extent - being forced to U-turn on extreme socialist ideals (taxes) and suffering from an overweight public sector and excessively generous public pensions deals. France has the power to pull out of the nose dive but Greece hasn’t (the French must be crossing their hearts). Yet despite the excuse of sympathies, this is not a great piece of PR for the French, leaving them looking very out of touch with what is going on.

But back to the Greek referendum. The path that Tsipras has taken in announcing a referendum on July 5th is logical but devisive. If you are damned if you do and damned if you don’t then pass that decision on to someone else and avoid the problem. The consequences of this referendum may well lead to Greece leaving or staying in the EU/Euro but that outcome is only implied and the Greek government will be very careful not to have any such specific wording appear in the question. The ‘let the people decide’ option implies gloriously fair leadership but is more a smokescreen to cover a fast retreat from responsibility. This option lets the masses decide and is wrought with danger

- The deadline for IMF payments is 30th June, well before any referendum outcome. If the EU/IMF allow a stay of execution until the results are in then they are laying down a dangerous precedent. 'You don’t have to replay your debts on time if you are having a collective think about it’, which could lead to industrial levels of deadline avoiding referenda. My cynicism already has me imagining that, as the referendum would not be complete until all votes are counted, delays from some of the far-off islands could be magically extended ad infinitum.

- The EU proposal is composed of highly technical detail that, with all due respect, will lead to the populace being asked to vote on something that they just don’t understand. Much as if I was asked whether to cut the red or blue wire to defuse an atom bomb. This could be seen as the greatest financial misselling crime ever as Tsipras is asking the whole population to make a life changing financial decision fully knowing that they are not in a position to understand what they are committing to. "Our record show you are owed FKD 56,000 due to the Grexit misselling. TXT 2015 to claim".

- The EU may, indeed some say they have, withdrawn the proposal making it impossible for the Greeks to know what it is they are actually voting on. If the Germans wanted to get really nasty they could even hold their own referendum on whether they will even provide a deal for the Greeks to base their referendum on. It would be even more interesting if the whole of Europe could vote on the content of the EU proposal as plenty would vote to see German creditors take the pain.

But the biggest problem is social unrest. When a government divests itself of responsibility, passing it back to the populace, the populace no longer has a well armed central pillar of anonymous authority against which to protest. Instead, with the government washing its hand of the problem, the rival sides take to the streets and take to each other. We have seen riots in Athens before, but these have always been directed with solidarity towards the government. When opposing marches meet and realise that they are opposing each other, rather than the government, it gets very nasty. To an extent we saw this with the Scottish independence referendum, where the campaign became very personal, pulling on nationalistic patriotism, morals, personal bullying and turned neighbour against neighbour.
In many ways the election of Syriza was very similar to that of the rise of the SNP. They represent a rejection of overseas lordship rather than reflecting the differences of local political feelings.

And just as with UK politics, beware of any opinion polls. As with the UK election people will be more willing to project moralistic and left wing biases but, when push comes to shove, will vote for their personal best wellbeing (that is even before we discount now evidenced herding behaviour of polsters). It is being publicised that the UK’s Ladbrokes betting company is pricing deal rejection at 1/3 on, but bear in mind that this price is being set by UK betters and, like CDS, does not represent actual probability of outcome. Just the implied. Also, as with CDS, the price contains a hedging bet component.

Having raised the subject of betting companies, they are one of the few places other than banks where you can hold your money on account. I had already supposed that this weekend Greek retail sales will  go through the roof as Greeks max out their credit cards as they are not able to withdraw their cash from banks, but a cleaner trade would be to set up and load up online betting accounts using credit cards this weekend. Online poker sites, expect your deposits to rocket.

Cash points are being emptied and all focus is now on the ELA which is the lifeline keeping the Greek banking system going. To the Greeks it is a gushing pipe of Euros that they are withdrawing as fast as possible in cash, yet to the Europeans it is a severed artery that needs to be staunched. What happens to the ELA on Monday is key as we are heading down the Argentina route fast. As with Argentina, the Greek government is soon likely to have to issue IOU’s. A form of debt that is enforced rather than bought. These IOUs effectively become a shadow currency reflecting where any new currency would trade. Though priced in Euros they would trade at a discount to reflect credit and political risk and that discount would match the discount that any new currency would be subject to as the determining factors are the same. These would easily transition to any new currency of the ‘Formally Known as Drachma’, the FKD.

Next week is going to be see a disorderly market open on Sunday night unless the EU/IMF back track (v unlikely) and it will not be long before opposing groups start to clash on the streets of Athens. Not something I want to see, but something I expect. After that? Get out your Argentina play book and sprinkle it with Russia dust.


Post script - Dijsselbloem has just spoken for the Eurogroup and his statement and Q+A can be heard here. It's good to listen to as you can pick up more of his exasperation than just through the text. The basic tone is 'We are done with this shit'. I do hope that the constant references to Tsipras as 'The Greek member' were meant as double entendre.

1 comment:

Leftback said...

Nice post. What is Greek for "patacones"? Argentina survived, but the transition wasn't pretty... this is no time to be punting.