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ECB Tightens Cash Pressure on Greece

Posted by Joseph Trevisani on Mar 9, 2015 2:21:00 PM

The Greek banking system has been surviving on European cash for months but that assistance is coming under increased scrutiny from the European Central Bank as the dispute over Athens' access to bailout funds escalates.

The Governing Council of the ECB has decided to hold a weekly review of its Emergency Liquidity Assistance (ELA) program that supplies the Greek banks with funds, rather than the biweekly meetings held previously.

Depositors have withdrawn some 20 billion euros from Greek banks in the past few weeks. Without the liquidity assistance from the ECB the Greek banking system would collapse. 

While it is not expected that the ECB will deny Greek banks the liquidity they need to remain solvent, at least not yet, the additional review is a reminder to Athens that if they do not meet the conditions of its European creditors, the end game for the Greek economy is not a week or a month away but could come in days if the ECB stops providing liquidity.

Greece's central government agreed in principal with its European lenders two weeks ago on a four month extension of its bailout program pending the creditors’ acceptance of Athens new measures to fulfill the terms of the existing loan agreements. 

But latest proposals from the Greek government, one of which is using tourists as tax collectors, forwarded on Friday were rejected yesterday by European officials as "far' from complete and noting that the country  probably won't receive bailout aid this months, according to Europe group Chairman Jeroen Dijsselbloem. The Eurogroup is one third of the so-called Troika of official Greek lenders, the others being the ECB and the IMF.

Greece is seeking the disbursement of about 7 billion euros from the bailout funds and has about 2 billion in obligations including Treasury bill redemptions and IMF obligations due on March 13th.  

“I can only say that we have money to pay salaries and pensions of public employees,” Greek Finance Minister Yanis Varoufakis said to Italy’s Il Corriere della Sera newspaper in an interview Sunday. “For the rest we will see.”

In its February 20th proposal, sent to Euro area finance ministers on the 23rd, Greece undertook to improve tax collections, rationalize tax rates by limiting exemptions, institute pension reform, reduce early retirements of government workers, liberalize the goods and services markets and to begin a complete review of government spending.

But the implementation of these plans outlined in Friday's memorandum was characterized as amateurish and not signaling substantial progress by two anonymous European officials party to the negotiations in Brussels, as reported by Bloomberg.

Greece’s anti-austerity Syriza government of Prime Minister Alexis Tsipras and Finance Minister Yannis Varoufakis was elected in January promising to renegotiate the terms of the 240 billion-euro ($261 billion) bailouts.

The Greeks electorate has endured more than five years of recession, an unemployment rate above 25 percent since September 2012, and much resented austerity in government budgets since the European debt crisis blew up in the beginning of 2010. 

Prime Minister Tsipras and Finance Minister Varoufakis have both suggested that if the Europeans force unacceptable demands on the government Athens may turn to a referendum to end the standoff.  

“If we were to hold a referendum tomorrow with the question, ‘do you want your dignity or a continuation of this unworthy policy,’ then everyone would choose dignity regardless of difficulties that would accompany that decision,” Tsipras said to the German magazine Der Spiegel Magazine in an interview published Saturday.

The problem for the Greek Government is that it reflects the incompatible desires of the Greeks electorate. In voting for Syriza the Greeks voiced their intense dislike of the austerity forced on their government and society by its creditors headed by the largest lender Germany. At the same time about 70 percent of Greek's say that they want the country to stay in the euro.   

These oppositions cannot be finessed.  Greece cannot survive financially and stay within the euro zone without money from Europe and austerity is the price Europe demands. 

Clearly Tsipras is not willing to undertake the enormous economic and financial dislocation of exiting the euro without the backing of the Greek people.

A referendum on euro membership, with the implied threat of leaving is the only leverage Athens has and they may be preparing to use it. 

 Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Bloomberg

ase march 9

 

 

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