Greece’s new government insists on major concessions from its European lenders before it accepts any new funding without which it could be bankrupt by the end of the month. The Europeans have responded by saying ‘get serious’.
Prime Minister Alexis Tsipras proclaimed in parliament that the era of austerity was over and end to “five years of bailout barbarity.” He proposed no more than the promises he made during the election campaign, to raise the minimum wage, increase the threshold for tax-exempt income and end the privatization program.
Each proposal abrogates the terms of the agreement signed by the prior government providing the Athens government with 240 euros of bailout assistance.
Tsipras has said they are needed to alleviate the “humanitarian crisis” in Greece. With an economy that has shrunk by a quarter and unemployment over 25 percent, no one can deny the pain of the Greek population.
Greece’s European Monetary Union partners are having none of it. German Chancellor Angela Merkel said today that the existing aid packages are the basis for any future talks.
“There is no way out” for Greece for its obligations, said Michael Fuchs a German politician and deputy caucus chairman for Merkel’s Christian Democratic Union Party. “We have full disagreement at the moment because what they want to do has nothing to do with all the agreements which have been made,” he said in an interview with Bloomberg Television.
The current bailout agreements run out on February 28th and Greece has said it does not want an extension. Not that it would have been granted one anyway by the so-called Troika of lenders, the EU Commission, the ECB and the International Monetary Fund because the review of Greek compliance with the bailout terms is incomplete and will remain so.
Greece is seeking a ‘bridge loan’ to tide the nation over and let it pay its bills until the summer in hopes that the extra time will permit a negotiated settlement.
An extension of the current agreement or a new bridge loan would each involve fresh cash for the Athens government. The difference is more than semantic because a bridge loan would be free of the terms of the bailout and if granted it would be in spite of the Greek government’s halt of the bailout austerity programs.
The rhetoric has been so confrontational is it hard to see how the opposing sides climb down and compromise. And what has been the bond market’s response?
Greek yields have increased, but not much. The 10-year has gone up just 1 percent to 10.745 since the beginning of the year. Other European yields are either stable or slightly higher. German yields have fallen. There is no excitement in continental credit markets.
The last time Greece faced default the contagion spread throughout the EMU, except for Germany and a few Northern European countries. This time nothing.
If Greece cannot come to terms with its lenders and secure new financing it will be bankrupt shortly and it will have to leave the euro.
No one it seems, is willing to take that bet.
For the bond markets this a lot of sound and fury signifying nothing.
Chief Market Strategist
WorldWideMarkets Online Trading