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From Deutsche Bank
Greek Update
Over the last couple of weeks we have framed
developments in Greece around three questions:
First, under what conditions would the Troika be
willing to continue negotiating with Greece?
Second, does the Greek government accept these
conditions?
Third, how does the ECB link Greek bank financing to
program negotiation?
Yesterday evening we got an answer to the last
question sooner than expected. The ECB no longer considers Greece to be under a
program, and the rating waivers on Greek government-based collateral are being
removed. We estimate that Greek bank funding at the ECB financing windows
currently runs between 70-80bn EUR, of which approximately 30bn relies on AAA
EFSF-based collateral. As a result the remaining funding (or about 50bn) will
now have to shift to ELA from next week. Even if this decision is likely to
have materialized when the program expired at the end of February, there are
two broader implications.
First, the decision shows that the ECB is feeling
increasingly uncomfortable providing financing to Greek banks while
negotiations are under way. This in turn raises the more important question of
how long and how large any ELA provision is going to last. ELA usage is subject
to a cap that is under bi-weekly review and requires a 2/3 majority of
Governing Council votes to be blocked. The government said that the cap was
raised by 10bn this week to be reviewed after developments in the European
Council and Eurogroup meetings in the next two weeks.
Second, the ECB decision shows that the ECB is very
unlikely to accommodate increased t-bill issuance from the Greek government.
There are currently two caps on t-bill usage. The first applies to total
issuance and is currently set by the Troika at 15bn. The second applies to the
t-bills that can be directly submitted to the ECB windows by Greek banks and
currently stands at 3.5bn. The ECB kept this unchanged in yesterday’s meeting.
The 11.5bn of t-bills not submitted to the ECB are currently financed by other
types of collateral.
Big picture, the above two developments are likely to
further accelerate timelines and pressure on Greece. The government’s strategy
has been to secure a window between March (when the current program expires)
and July (when a large GGB ECB redemption is due) over which to negotiate a new
program. Time for this negotiating window would have been bought by both Troika
and ECB willingness to accommodate increased t-bill issuance to pay for ongoing
cash needs over the course of Q2. We have yet to hear from the Eurogroup on its
willingness to raise the overall t-bill cap, but even if this materializes
today’s ECB decision signals rising discomfort for the central bank to
accommodate this, even indirectly via other types of collateral.
This then leaves the remaining two questions above
that need to be answered over the next two weeks: the conditions under which
the Troika/Eurogroup would be willing to negotiate with the Greek side and the
Greek government’s response. The most confrontational outcome would be a Troika
requirement that the current program review is completed, requiring a request
from the Greek government to extend it before February 28th. A more
conciliatory outcome would be an offer for negotiations on a new third
program,** but accompanied by a pre-commitment (most probably written) by the
Greek government to respect certain conditions.
Irrespectively, the t-bill
decision will be key: assuming the Troika and ECB are unwilling to approve
higher issuance, the negotiations would have to be completed by the earliest of
any potential ELA cap being hit due to deposit outflows or the Greek government
running out of cash to pay ongoing budget needs. The exact timing of the latter
remains unclear, but with Greek budget execution under very significant
pressure due to the change in government and weakening economy this is unlikely
to last beyond April.
The situation remains very fluid but as things stand
we consider the most likely outcome to be a Eurogroup offer of a new Third
program. Greece in any case has lost market access making ECCL eligibility
unlikely, and given that the current program expires this February the offer to
negotiate a new Third program may provide political room for the government to
sit on the negotiating table. At the same time such an offer is very likely to
be attached to strict conditions, with the willingness to accommodate t-bill
issuance an open question. Developments overnight suggest that this has become
less likely, imposing maximum pressure on the government to reach agreement
within a matter of weeks.
* * *
Thursday February 5th – Eurogroup working group (EWG,
the institution responsible for preparing Eurogroup meetings)
Thursday February 5th — Greek parliament opens, elects
new speaker of the House
Saturday February 7-9th — Government presents
legislative agenda to parliament, vote of confidence midnight Monday 9th
Wednesday February 11th – Likely t-bill auction to
cover EUR 1.4bn maturity on 13th
Wednesday February 11th – potential emergency
Eurogroup
Thursday February 12th – European Council of EU
Leaders, Tsipras likely to meet Merkel on sidelines
Friday February 13th – Voting for new Greek President
begins, EC Commissioner Avramopoulos most likely candidate, originating from
New Democracy. Likely completed by second round on the following day requiring
151 MP majority
Monday February 16th – Eurogroup where Greece likely
to be top of agenda, conditions for extension of program to be made explicit by
now
Wednesday February 18th-19th- – Bi-weekly ELA review
Saturday
February 28th – Current EFSF program expires
Δημητρης
Καμμενος
Βουλευτης
Πειραια
Αν.
Ελλ.
