Tuesday, December 9, 2014

Greece Lurches Back Into Crisis Mode

Dec 9, 2014
Dec. 9 (Bloomberg) -- BlackRock Investment Institute Senior Director Peter Fisher discusses the global economy and central banks monetary policies on “Market Makers.” (Source: Bloomberg)
Greek stocks fell more than at any point during Europe’s debt crisis today after Prime Minister Antonis Samaras gambled his political future on bringing forward a parliamentary vote on a new head of state.
Greek stocks tumbled the most since 1987 and three-year yields surged in response to the prime minister’s move. Unless he can persuade 25 opposition lawmakers to support his choice, Samaras will be forced to call a parliamentary election that anti-austerity party Syriza would be favorite to win.
“Investors have taken a second look at Syriza and understood that at this point in time it’s more radical than the traditional left in Greece,” said Nicholas Veron, a fellow at the Bruegel research institute in Brussels. “If Syriza takes over it won’t be a smooth ride.”
Less than a month before Samaras had hoped to lead Greece out of the bailout program that has ravaged the country for the past four years, the resistance to his policies is fueling doubts about whether he can stay the course. While Syriza has pledged to stick with the euro, its plans to roll-back Samaras’s budget cuts evoke memories of the financial chaos that threatened to bust apart the currency union in 2012.
Greece’s benchmark stock index dropped 13 percent and the bond market signaled investors are concerned about short-term disruptions, as the yield on 3-year debt jumped 176 basis points to 8.23 percent, surpassing 10-year rates.
Photographer: Louisa Gouliamaki/AFP via Getty Images
The Athens stock exchange on Dec. 8, 2014.
“It’s possibly a good decision, but in the end it’s in the hands of the decision makers in parliament and the population,” German Finance Minister Wolfgang Schaeuble told reporters in Brussels. Greece’s reform program is “not yet over the hill,” he added.

180 Votes

Samaras nominated Stavros Dimas, a 73-year-old former European Union commissioner, for the largely ceremonial post of president. Voting will begin next week, on Dec. 17, with two further rounds possible.
Under Greece’s constitution, a supermajority of at least 180 lawmakers in the 300-seat chamber is needed to elect a successor to the incumbent, President Karolos Papoulias. The government has the support of just 155 lawmakers. Failure to install a candidate after three attempts would force Samaras to dissolve parliament.
“Political uncertainty must end now,” government spokeswoman Sofia Voultepsi said late yesterday in an e-mailed statement announcing the vote. The coming months are “crucial” for an agreement on a credit line to replace Greece’s bailout program and negotiations over the country’s debt, she said.
Photographer: Angelos Tzortzinis/AFP via Getty Images
Greek protesters outside the parliament in Athens ahead of a budget vote by lawmakers on Dec. 7, 2014.

Difficult Math

Only some of the 24 lawmakers not currently caucusing with any of the country’s political parties have said they may support the government’s candidate for the presidency. All opposition party leaders have said they’ll block any pick made by Samaras, meaning the government will have to count on a revolt from opposition lawmakers against their official party lines to secure the election of a new president.
“The math is very difficult for the government,” said Aristides Hatzis, an associate professor of law and economics at the University of Athens.
Anti-bailout group Syriza, which currently leads the government in opinion polls, welcomed the announcement, saying that Samaras’s coalition didn’t have the votes to secure its choice of president. Greece’s next general election isn’t due until 2016.
Samaras has vowed to exit the unpopular rescue program at the end of 2014. It envisages regular emergency loan disbursements being replaced with precautionary credit lines from the International Monetary Fund and the European Stability Mechanism that would come with fewer strings, and would only be used if Greek borrowing costs spike.
Photographer: Kostas Tsironis/Bloomberg
Antonis Samaras, Greece's Prime Minister.

EU Meeting

“A positive outcome will renew Samaras’s lease on power and put in him a better position to strike and agreement with the troika,” said Thanassis Drogossis, head of equities at Athens-based brokerage Pantelakis Securities.
Samaras’s plan was announced as euro-area finance ministers meeting in Brussels yesterday said that agreement on Greece’s final bailout review, a condition for the extension of a credit line, is not possible by the end of this year. As a result, the current bailout will be extended by two months.
“Syriza may find itself winning an election, with less than a month before the program expires and Greece is left without a financial backstop,” said George Pagoulatos, a professor of European politics and economy in Athens. “This could steepen the learning curve in order to avert the worst.”
Staff teams from the troika of officials representing the country’s lenders -- the European Commission, the European Central Bank and the IMF -- are due to return to Athens today. There, they will resume talks on the measures required to complete the review, paving the way for the disbursement of about 7 billion euros ($8.6 billion) in aid outstanding.

‘Calculated Risk’

The review, which started in September, remains stalled, as the country’s creditors raise doubts about the projections of next year’s budget and ask Greece to adopt more budget savings to ensure that it meets its targets.
Samaras “knows he has to establish political clarity,” Michael Fuchs, the deputy chairman of German Chancellor Angela Merkel’s party, said in an interview in Cologne.
It’s “a calculated risk taken by Samaras that’s actually a smart move,” said Fuchs, who said he spoke with Samaras yesterday by phone. “Its chances of paying off are more than fair. He knows what he’s doing.”
To contact the reporters on this story: Nikos Chrysoloras in Athens at nchrysoloras@bloomberg.net; Antonis Galanopoulos in Athens at agalanopoulo@bloomberg.net
To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net; Vidya Root at vroot@bloomberg.net Ben Sills, Andrew Atkinson
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