March 27, 2015

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Towards another climb down?

Gone is the sense of optimism after Alexis Tsipras' meeting with Angela Merkel on Monday. Throughout this week, observers have begun to realise that behind the soft rhetoric the political line of the creditor countries has hardened and that Greece will not get any cent soon without a full reform list approved by the troika. The €1.2bn the Greek government had hoped to retrieve without reforms will not be available at all or at least not any time soon. There are also consequences from the ECB's decision to bind Greek banks legally from increasing their T-bill holdings.  The government will thus have to find other funds to replace foreign investors' holdings in the roll over of €1.4bn of 6-month T-bills early April, Macropolis reports, most likely by tapping into cash from government entities.

Deadlines are imminent, and many obstacles are still to be overcome. The Greek government has to deliver its full reform list by Monday. Reports suggest that many of the details have yet to be decided. Tsipras needs to get the backing from his party and is likely to face resistance in meetings with the Syriza secretariat and its MPs. And the relationships with the troika have to be mended. The eurogroup, and Merkel herself, made it clear that nothing will move without the troika. This means that Athens has to change the way it deals with the troika. The current arrangement has been that political discussions are held in Brussels while the technical staff gather data in Athens. But that led to a dead end. The troika staff in Athens were confined to stay in a hotel with no access to the ministries. With no time to lose, this setup needs to change, but this is easier said than done. Syriza always insisted that it resents the humiliating loss of sovereignty to an interfering troika. A financially distressed borrower cannot expect its creditors to leave it unsupervised and with full freedom of action, argues Satyajit Das in EconoMonitor. But that would represent a huge climb down for Syriza. Christine Lagarde had a telephone conversation with Tsipras yesterday, though details on the call are sparse. 

This renewed political uncertainty is bad news for Greek banks, which are now faced with a new wave of deposit outflows and limited access to ECB funds, relying entirely on ELA liquidity. It had just started to look better again: Macropolis reports that the Greek bank credit contraction slowed to 2.5% in February from 2.9% in January and that monthly credit flow turned positive for first time since June 2012. Also Greek private sector deposit outflows slowed to €7.63bn in February from a record high of €12.79bn in January, due to the upbeat mood about the February 20 deal. A further breakdown also showed that three quarters of the withdrawn deposits stayed inside Greece while only one quarter of those deposits went abroad, according to this article on Macropolis, a marked difference to 2012. Banking sources say that the deposit flight had stopped after the February 20 agreement, but resumed again last week. 

The following extract from an ECB table shows the deposit base over the last four months:

Greek Bank Deposits
Nov 2014€172,033
Dec 2014€167,526
Jan 2015€155,366
Feb 2015€147,523

Our other stories

We also have stories on Greece opening up a bilateral deal to recover illegitimate funds; the eurozone's divergent recovery; why France have an opportunity for structural savings this year; Renzi's approach to selling reforms; commentary on why austerity is our last chance; and on the real dangers of Grexit.

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