This is the second in the weekly GreekWatch series (first week here, plus there was a special this week here). So first up, the timetable ahead
Today (19th June) – Meeting of EuroZone finance ministers (“the Eurogroup”) inLuxembourgwhere our own Minister for Finance, Michael Noonan will represent Ireland’s position. The leader of the group, Luxembourgish prime minister, Jean Claude Juncker has warned against countries and institutions “playing with fire”. In other words, this is serious.
Tomorrow (20th June) – continuation of Eurogroup meeting, don’t be surprised if the meeting continues beyond its scheduled finish time. Some think it might continue until the Summiton 23rd. On Monday the Eurogroup will be joined by non-EuroZone finance ministers including the UK’s George Osborne
Tuesday (21st June) – confidence vote in the Greek prime minister. Betting is he will prevail. If not, perhaps new finance minister Evangelos Venizelos will care-take government during crucial votes. Otherwise domestic turmoil.
Thursday/Friday (23-24th) – Summit of EU leaders in Brussels where Taoiseach Enda Kenny will represent Ireland’s position. Expect the bones of a second bailout for Greece to emerge.
Wed/Thu (28th/29th June) – When Greece is understood to have concluded its debate, (re) negotiation, vote and agreement and consensus on new austerity and privatisation plan. The 29th was also the original date of the next draw-down of Tranche 5 of Bailout 1, totalling €12bn bringing the cumulative total to €65bn from the €110bn Bailout 1.
“Early July” – when the IMF indicated Tranche 5 of Bailout 1 would be drawn-down, this after the staff level agreement on 3rd June
15th July – when Greece is scheduled to start repaying maturing debt and which it claims it can’t without Tranche 5. This is probably the backstop date for any agreement, because if maturing bondholders don’t get their moolah, there will be messy sovereign default.
What’s likely?
Following the joint announcements by France and Germany on Friday last, it seems that Greece may get a second bailout of €120bn, with €30bn coming fromGreece’s own resources (additional privatisation) and the remainder coming from the EU and possibly, the IMF. On a voluntary basis, private bondholders may contribute to the bailout by agreeing to extend the maturity of their bonds, possibly in return for higher interest rates, better collateral and greater protection. About a week ago, the talk was that €30bn of the second bailout would come from private bondholder participation. The thinking in the market is that bondholders will not participate unless there is “an element of compulsion” which would greatly upset the ECB and more importantly ratings agencies. So from this perspective, it seems that there will be a second bailout of €120bn with €30bn from Greece and most of the rest from the EU, and possibly the IMF. And by the looks of things, it might not be an EU-wide bailout. The Finns and Dutch will be unhappy about contributing more, so it might fall to the Germans, French and a handful of other EU nations to stump up for Greece Bailout number 2.
As for the Tranche 5 of Bailout number 1, I think the betting is that the €12bn will somehow be drawn-down by 15th July. Despite all the noise in Greece this week, at the end of the day it was not a huge protest – the impression given by the Irish media is thatAthens is ablaze, it is no such thing and life is continuing more or less as normal.Athens is a city of 4m and the estimates of protesters on Wednesday seemed to be in the 50-100,000 range. In Ireland, where we don’t really protest much, we mustered 100,000 in a city of 1m in 2009, and 50,000 last November when the IMF deal was negotiated. Regardless of the anger, Greece must in any event close its primary deficit, that is, what it collects in tax less its public spending and welfare (primary deficit excludes interest on debt). And Greece seems to be at least a year off that. So if Greece doesn’t agree a plan with the EU/IMF and defaults, then it will need balance its budget immediately and probably withdraw from the euro. Set against that scenario, I think the betting is Greece will accept a plan, but plainly it’s not assured.
And what about the “purely voluntary” bondholder initiative touted on Friday byFranceandGermany? The view by bond traders in Ireland is that there will be no take-up if it is purely voluntary without any element of compulsion. But if faced with default or arm-twisting, there may be some participation.
What about Ireland? Although the Taoiseach will spend two days in Brussels this week and Minister Noonan will spend at least two days in Luxembourg, we’re likely to be told again “too bad, so sad, no time to discuss your issues”. Will Taoiseach Kenny decide to create some noise and demand a 1-3% reduction in our interest rate on ALL EU borrowings, that is the €17bn already received and the €28bn that may be drawn down in future? Who knows.
And lastly, what contingencies has Ireland if this all turns pear-shaped? On RTE’s This Week radio programme today junior minister at the Department of Finance, Brian Hayes didn’t say, when asked that question. It seems that the scenarios are too horrendous to contemplate : a collapse of the Euro, withdrawal of ECB non-standard liquidity, the collapse of Irish banks. All are horrendous but hopefully our Government is nonetheless planning for eventualities as it seems agreed that the EuroZone is confronting the most serious crisis in its 10-year life and that we are in waters last navigated in 1992 when there was partial breakup of the EMU.
NAMA Wine Lake 