GreekWatch (Day 6 of 13) – “A debt restructuring, or exiting the euro, would be like the death penalty – which we have abolished in the European Union”

The IMF and EU teams remain on the ground inAthensas they work through their assessment of compliance byGreecewith the bailout agreement and the prospects of success for the new austerity and privatisation measures. They are due to report on 6th June, 2011 – day 13 of GreekWatch

Yesterday Tanaiste Eamon Gilmore unconvincingly told RTE radio that the EU didn’t have a contingency plan for a Greek default. Today there are rumours – unfounded rumours according to some – that the EU has indeed been working on a contingency plan and that next Monday 6th June, it will be debated and agreed by the 17 EuroZone finance ministers. It’s quite a specific claim. Mind you so was the claim about the Rapture last week. Regardless of whether or not it is true, it is incredible that the EU does not have contingency plans for an event which the markets believe to be likely. There were other rumours in the FT that plans are being drawn up for EU officials to take over responsibility for Greek domestic responsibilities like tax collection.

Greek news source, Capital.gr reports that there is to be a meeting of Olli Rehn’s EU commission tomorrow to try to flesh out the detail of any additional financing package (aimed at addressing the obvious problems thatGreece now faces in not being able to meaningfully return to the open market for funding for some years to come). The idea of an additional financing package or additional bailout seems to be accepted as a given, see the casual reference to it by the ECB below.

Meantime, the non-political, non-union protests grow and on Sunday some estimates were of 100,000 protesters inAthens alone (others were around 30,000 gathered in Syntagma Square in front of the Greek parliament). Greek politicians have remained schtumm over the weekend and the official line is that the austerity and privatisation plans will be presented to parliament for ratification in early June.

Today’s FT publishes an interview from last Friday with ECB board member Lorenzo Bini Smaghi in which he pours cold water over the idea of a Greek restructuring or exit from the euro. Lorenzo is of course the Italian economist who is on the six-member ECB executive board which together with the ECB governing council (17 members who are the governors of the EuroZone national central banks) makes the key decisions for the ECB. Lorenzo is always good for a few controversial words as we know only too well in Ireland; the interview is well worth reading in full, not just for the quotation used in the title of today’s GreekWatch entry. Lorenzo does not dispute that the ECB holds €45bn of Greek government debt with a further €32bn in Portugese and Irish bonds – the ECB would take the first 8% of any default, after that it would be passed onto national central banks. Personally this one had me rolling around laughing “the task of other countries is to make sure that they are solvent – that was the contract of the Stability and Growth Pact. If any country breach rules, the others should force them back to the rules with sanctions and so forth.” Where was that thinking whenIreland’s debt was being stoked up to 120% of GDP (twice the Stability and Growth Pact maximum) so that bondholders could be repaid? Lastly Lorenzo practically confirms that a new bailout will be needed forGreece to fund maturing debt in 2012-2013, €60-70bn in total of which one half would come from the EU/IMF and the remainder by private lenders (eg Greek banks) agreeing to a roll-over.

Today we take a closer look at the privatisation of TrainOSE (akin to the train operations of our own CIE) which the Greek government owns 100%. It had previously touted the idea of selling 49% of the company but retaining majority ownership. Apparently there is no private sector interest in such an arrangement and the government is now toying with selling 100%. There will be some issues with the sale. At present, the company is loss-making, partly because it’s inefficient, partly because public transport is dirt-cheap inGreece. Any new owner will reform the company (that is, make large numbers of its 1800 employees redundant) and raise ticket prices (you can currently travel from Athens to Thessoloniki, 515kms for €15). The company made a €0.25bn loss in 2009. How much would a privatisation fetch? Difficult to say, the company has been mentioned in the context of a basket of companies that might raise €2.5bn though presumably any new operator will need extensive freedom to set prices and reform operations.