June 30, 2015
If the goal was to provoke the Greek electorate into a Grexit, we are doing all the right things. Not accepting a programme extension for a few days to beyond the referendum date; and the attempt to influence the referendum through a well co-ordinated scare campaign, by trying to reframe it as a euro-in or out referendum. The two are logically linked of course. By allowing the second programme for Greece to expire on schedule at midnight tonight without the payment of the final tranche, the referendum will take on a different meaning. It is about a programme that no longer exists. But by forcing this change of meaning, Jean Claude Juncker, Angela Merkel, Matteo Renzi and Sigmar Gabriel have made a potentially catastrophic gamble. In particular, they showed no understanding whatsoever of what has been happening in Greece over the last five years. It had the emotional quality of "you are with us, or you are against us" threat, and we all know how that ended.
Peter Spiegel called it a "high-risk political gamble" which was co-ordinated in a series of phone calls during the weekend. The idea is to repeat the "success" of ousting George Papandreou as prime minister in 2011. Spiegel noted that this attempt could backfire, also because it is based on false claims, like Juncker's statement that their would be no pensions cut under the creditors' proposal, which is factually wrong. We are not going to give you here the full he-said-she-said account of what happened yesterday, but we thought this quote from an unnamed EU official in Spiegel's report says it all:
"This domestic politics is not about a simple thing — this is about us...What’s the alternative? Take all this shit and stay silent?"
The big, but wholly anticipated news of today will be the Greek default on the IMF at midnight tonight, central European time. It will not be a technical credit event, but a momentous decision nevertheless - the first an advanced country has failed to pay up.
Alexis Tsipras went on the counter-offensive, and effectively threatened to resign if there is a Yes vote. He said: "we will respect it, but we will not be the ones to carry it out" according to Reuters. This statement suggests that he is either certain to win the referendum, that he is lying, or that he is telling the truth. He obviously has concluded that as a party of the radical left, he cannot impose austerity. Speaking at a No-rally in Athens, he also suggested that the creditors have no interest in pushing Greece out.
We also noted a curious statement by Benoit Coeure (again him) in a French newspaper interview, according to which Grexit cannot no longer be excluded. While that statement is factually correct, and has been made by others countless of times, it is not clear to us why the ECB, as a non-political institution, would want to state this point in public, because it might be construed as an additional threat: If we get the sense that this leads to Grexit, we might pull the plug early. Does the ECB want to influence the referendum as well?
A further development, as reported here, and here, and here, the Greek government is considering appealing for a court injunction by the ECJ to prevent Grexit (which seems odd to us, since nobody will actually push Greece out, while Grexit, if it were to happen, would be the consequences of a series of decisions taken by Greek governments. The only hook for a court injunction would be to prevent the ECB from pulling the ELA.)
The overall financial market implications of the weekend's events were relatively mild, except for a noticeable rise in CDS spreads for peripheral countries. The iTraxx Crossover was about 42 points at 332bp, according to Reuters. Spreads were up 47bp.
Greece again dominates are coverage today. We produce an assessment of the attempt by EU leaders to frame the Greek referendum as an in-and-out debate; and also look at various Grexit scenarios, and discuss the impact.