SYRIZA applies for a Third Bailout
July 1st, 2015 | Philip Ammerman
The last 24 hours have seen a marked deterioriation in the Greek economy and with it a reversal of the SYRIZA-ANEL negotiating position.
Greek Bank Withdrawal Limits
There are long lines in front of banks and ATMs across Greece. The effective withdrawal limit is € 50 / account / day, as banks have apparently run out of the € 20 notes needed to withdraw the full € 60.
It has been found that approximately 1.1 million pensioners do not have ATM cards, and therefore cannot withdraw their daily limits from the ATMs. As a result, approximately 1000 bank branches will open to serve pensioners this week. A limit has been placed of about € 120 / pensioner.
One negative impact is that thousands of Greek businesspeople, students and travellers are abroad with no access to cash. Another negative impact is the turbulence among foreign travellers in Greece, who at times have not been able to withdraw cash. A third negative impact is a reported increase of petty crime.
Greek Pension Payments Delayed
Several pension funds have announced that they do not have the cash reserves necessary to pay the full pension amount. According to the Financial Times:
But many pensioners were growing frustrated over successive announcements cutting the amounts they would be allowed to withdraw. On Sunday the finance ministry said pensioners could take their full payments before capping that on Monday at €240 and then, a day later, halving it to €120.
Angry pensioners protested outside the offices of OAEE, the state pension fund for self-employed workers, which was unable to transfer funds to retirees’ bank accounts overnight.
Tasos Petropoulos, OAEE’s director, said the fund’s 350,000 pensioners would receive half the monthly amount due by the end of the day and the remainder next week, provided the lossmaking fund can raise another €130m in the interim.
The finance ministry said 850 bank branches would open on Wednesday where pensioners would be the only customers. The ministry website then crashed as pensioners tried to log on to find the nearest cash machine.
Several other state pension funds, among them TAP-OTE, the main telecoms operator’s fund, and OGA, which covers more than 1m Greek farmers, said they were delaying disbursements normally made at the end of the month.
Political Developments and the Third Greek Bailout Request
Greece formally defaulted on its € 1.5 billion IMF loan. This loan has been declared “in arrears” by the IMF.
Yesterday, June 30th, Prime Minister Alexis Tsipras requested a Third Bail-Out Package of € 29.1 billion over the next two years. The objective is to refinance Greece’s current debt burden over this time period.
Today, the Peter Spiegel of the Financial Times revealed a second letter, in which Prime Minister Tsipras accepted the broad conditionality of the Second Bailout (which formally expired on June 30th), with some amendments.
This represents yet another “somersault” by the SYRIZA-ANEL government. Unfortunately, Greece’s European creditors are less than impressed:
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Chancellor Angela Merkel declared that there would be no further steps until the Greek Referendum had been held. This is a politically astute move on her part, in that by July 5th when the referendum takes place, Greece will probably be out of cash, and therefore presumably the reality of the situation will sink in. (This cannot be assured).
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Eurogroup ministers are not impressed with the rapid volte-face. As the FT reports: But a European official cautioned “the question now is not whether Greece agrees to certain measures. It’s the political will to reach a deal among the other eurozone partners. And this is very difficult to predict given all the bad will.”
Prime Minister Tsipras is set to deliver yet another televised address shortly.
European Central Bank Decision on Greece Today
With Greece formally in default and formally outside a restructuring programme, the European Central Bank today needs to decide what course to follow with Emergency Liquidity Assistance. Its options remain very similar to those outlined in my previous article on Tactical Errors in the Greek Referendum. In strict legal terms, it will presumably have to end support. Given the political “excuse” of the referendum, it may either increase the collateral haircut, or keep things stable. Even a minor increase in the “haircut” renders the Greek banking system insolvent.
Conclusions
It appears, in line with other articles, that SYRIZA-ANEL have totally miscalculated their political strategy. They have chosen to enter a political war with European creditors, foolishly believing that the European Central Bank would continue to provide a blank cheque for the insolvent Greek banking sector. They have also entered a crisis without adequate cash reserves or even basic planning for what happens when capital controls are imposed. Everyone living in Greece has seen pensioners queuing at the beginning of each month to withdraw their pensions from bank counters.
Given how long analysts, including myself, have been predicting that capital controls will be necessary, this lack of preparation reveals a systemic incompetence and total lack of basic planning or understanding.
It seems more than ever that the decision to break off negotiations and call a Referendum was an act of empty defiance which is rapidly back-firing and causing major divisions both within Greek society as well as within SYRIZA itself.
As I stated in a blog post on January 31st:
Alexis Tsipras and Yanis Varoufakis came to power with 36% of the national vote, in an election with a 36% absention rate. That is to say, they have won 2,246,064 votes, which is only 27% of all votes cast, and only 20.8% of the Greek population. One would have hoped that they would govern with humility and carefully-considered actions given the magnitude of the crisis and the fragility of their own support. One would hope in vain.
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