Friday, 17 August 2018

Tsipras back in the hot seat

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Anthony Peters on a Greek letter, and the PM’s sparse options.

Today is March 23 – yes, we are in spring even though the outside temperatures belie the calendar – but I was tempted this morning to re-read a few lines I had written on March 9 which were:

“He (Yanis Varoufakis) is pouring out reform proposals which are being presented to the Eurogroup but which lack meaningful mechanisms for practical implementation. At the same time, he is urging Brussels to loosen the purse strings on the much needed emergency funding. The Syriza administration might have been elected in order to revise Greece’s relationship with its funders but E.Z. Moneybags Esq, provider emeritus of cash to the needy, does not have the same mandate and is quietly sitting, drumming his fingers, as he awaits any sort of compelling argument why more money should be paid out. Other than a few vague promises of wanting to do better, Varoufakis has little to show. Scepticism reigns supreme when “Whatever it takes” meets “Not a snowball in hell’s chance”.

Presumably Varoufakis is still banking on the need for the QE programme to succeed being greater than the cost of slipping Athens a few billions on the sly. It is hard to see how he might not be right and how the powers that be might find the cost of blowing the euro project off course – not sinking, just blowing off course – too high to contemplate. If Varoufakis doesn’t blink, he might yet win or at least score an interim victory.”

Following this weekend’s supposedly “make or break” negotiations, not much looks to have changed other than that the public face and voice of the Greeks is now again the Prime Minister, Alexis Tsipras.

He is slated to meet Mutti Merkel today on the back of a letter which he wrote the German Chancellor on March 15 – and reported in the FT this morning – in which he wrote “Given that Greece has no access to money markets, and also in view of the ‘spikes’ in our debt repayment obligations during the spring and summer . . .  it ought to be clear that the ECB’s special restrictions when combined with disbursement delays would make it impossible for any government to service its debt”. He went on to come to the obvious conclusion that “….I am urging you not to allow a small cash flow issue, and a certain ‘institutional inertia’, to not turn into a large problem for Greece and for Europe”.

Is this not a polite repeat of George Papandreou’s Junior’s threatening presentation of Hobson’s choice to the same lady in Berlin in 2011 which led to Germany not only being world champions at soccer but also top of the league when applying their proven kicking skills to cans on the road?

We cannot but sit, watch and assume that Greece will find a way to live another day or perhaps more accurately find a way to make the rest of the eurozone believe that the cost of the alternative is and will remain too high.

How long the lull?

Meanwhile, cash bond trading came to a near standstill on Friday. Whoever had expected some sort of deus ex machina revival of market activity after the FOMC meeting must have been sorely disappointed. In fact, things were not at all good with even subscription volumes on new issues low and the performance of many of not most new corporate bonds in the after-market leaving much to be desired.

This was also reflected on my Bloomberg screen where Friday afternoon saw system generated messages reporting iTraxx index pricing outstrip usable information on cash market activity easily by 10 to one. It felt strictly as though nobody cared. Secondary markets have for some time not been in a healthy state but the malaise has, so far, passed by primary activity.

Whether the lull is temporary or whether the “anything at any price” phase of primary bond purchasing is coming to an end remains to be seen. I can only hope that a period in introspection is upon us. I would approach the new week cautiously. Always better to miss the odd winner than to capture unwanted losers.

Remembering Lee 

Please permit me to join many in the world in offering my condolences to the people Singapore on the death of Lee Kuan Yew. It was the urgent need for armaments during the Great War which led the coining of the phrase “guns before butter”. Lee Kuan Yew turned that around to become “butter before personal freedom” and in doing so he set the scene for the transformation of a swap first into the Switzerland of Asia and then to the Monaco of the East. None of this has been done without considerable cost to many although the result is, by anybody’s standard, impressive.

The list of countries with a triple A rating from all major agencies is small and diminishing. Singapore is one of those few. Whilst on the subject, Fitch has put the rating Finland’s AAA, another one of the few, on negative watch while S&P has shifted Portugal’s BB to positive. I wonder whether if S&P, were it to downgrade Greece from its current B-, it would use the Greek alphabet and move it straight to G?

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