11 May 2015
Will Greece get new aid or default? - BBH
FXStreet (Barcelona) - Commenting on the developments between Greece and its creditors, the Brown Brothers Harriman Team note it is doubtful that the May 11 Eurogroup meeting will resolve what has proven intractable for the past year.
Key Quotes
“Officials still seem to be talking past each other. The Syriza-led government claims the old agreement has failed, and it wants a new one. The new one cannot impose more austerity via wage cuts or pension cuts.”
“The official creditors say that the new government must adhere to the agreements struck by the previous government. The creditors themselves seem divided on the relative importance of pension and wage cuts and primary budget targets.”
“The improved atmosphere of the negotiations has been widely commented upon. The results have been the same. There is slow progress, and agreement seems some distance off. If there is not sufficient progress, the ECB could decide as early as this week to raise the discount (haircut) applied to Greek bonds used as collateral under the ELA facility.”
“We also continue to suspect that investors may misread the significance of the ECB not extending the ELA facility. It gives Greek banks only the amount that it believes they need. The lack of increase would be a sign that the situation stabilized (good news), not that the ECB has cut them off (bad news).”
“If Plan A is for a deal to be struck that allows Greece to keep its creditors whole, than Plan B is for Greece to restructure its debt. One of the problems with this is that some countries are counting on being repaid by Greece for them to meet their own fiscal targets.”
“The impact of a write-down of Greece's debt would seem to vary by how countries have accounted for the bilateral loans and the contingent exposure via guarantees. It also depends on how much of a write-down is forced. An orderly process within EMU would seem to increase the odds of a smaller loss than if it is a disorderly process that leads to Greece's exit.”
Key Quotes
“Officials still seem to be talking past each other. The Syriza-led government claims the old agreement has failed, and it wants a new one. The new one cannot impose more austerity via wage cuts or pension cuts.”
“The official creditors say that the new government must adhere to the agreements struck by the previous government. The creditors themselves seem divided on the relative importance of pension and wage cuts and primary budget targets.”
“The improved atmosphere of the negotiations has been widely commented upon. The results have been the same. There is slow progress, and agreement seems some distance off. If there is not sufficient progress, the ECB could decide as early as this week to raise the discount (haircut) applied to Greek bonds used as collateral under the ELA facility.”
“We also continue to suspect that investors may misread the significance of the ECB not extending the ELA facility. It gives Greek banks only the amount that it believes they need. The lack of increase would be a sign that the situation stabilized (good news), not that the ECB has cut them off (bad news).”
“If Plan A is for a deal to be struck that allows Greece to keep its creditors whole, than Plan B is for Greece to restructure its debt. One of the problems with this is that some countries are counting on being repaid by Greece for them to meet their own fiscal targets.”
“The impact of a write-down of Greece's debt would seem to vary by how countries have accounted for the bilateral loans and the contingent exposure via guarantees. It also depends on how much of a write-down is forced. An orderly process within EMU would seem to increase the odds of a smaller loss than if it is a disorderly process that leads to Greece's exit.”