Friday October 24, 2014 Search
Weather | Athens
19o C
12o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Euro twilight zone beckons for Greece

By Mike Dolan

Speculation about an endgame in Greece's protracted crisis has flooded markets with euro exit scenarios this week, but investors reckon there's still every chance that uncertainty will simply drag on for months.

Seeking clear-cut outcomes to the euro saga to date has proven fruitless for investors, who have instead been forced to live with the «muddle through» of European politics.

And more used to precedent, probabilities and precise numbers, asset managers are far from their comfort zone when interpreting the hyper-politicized standoff over Greece's future membership of the single currency.

So instead of mapping binary outcomes, investment strategists are once again looking hard at the grey areas.

The political vacuum in Greece after May 6's inconclusive elections seems to have hastened a showdown where no government in Athens can deliver more budget cuts, so no more bailout funds are forthcoming and public money drains away, leading to mass defaults and a euro exit with all its wider ramifications.

And if that's the will of the Greek people, then it may be tempting for all sides to try and manage the outcome as best they could. But nothing's that simple. Even though Greek voters rejected austerity in favor of anti-bailout parties, opinion polls show more than 75 percent want to stay in the euro.

What happens when the cash runs out is the crux question. Greece will most likely need more outside funds from its bailout program before any new elections in June establishes a fresh mandate to secure further tranches of foreign money.

So what analysts are homing in on is whether Greece can bridge any gap while still staying in the euro.

Many are looking at the possibility that Athens issues IOUs to meet salaries and key service bills for a fixed period, much in the way California did during its budget crunch in 2009 when it issued 'registered warrants' with a coupon in place of dollar salaries and which banks then accepted for cash.

Much hinges on whether the European Central Bank would allow the Greek central bank to accept such IOUs and there's little clarity on those hypotheticals.

However, strategists reckon any Greek government IOUs would quickly act as a proxy for a new drachma and exchange values against the euro would mostly likely plummet in practice as people rushed to cash out - offering Greeks a glimpse of the shock of devaluation in a euro-ized economy with euro-denominated debts.

"I'm really not sure Greece could survive for very long if external money was cut off,» said Darren Williams, economist at fund manager AllianceBernstein. «But what an experience of IOUs may do rather quickly is bring home to the average Greek citizen just how much more difficult a place it is outside the bailout program and outside the euro."

Others said that such an unstable twilight zone within the euro but with a parallel proxy drachma could possibly last for several months as the euro policy machine churned.

"Whether it is something that lasts six to 12 months or something that lasts longer term depends on how many IOUs they have to put out,» said Erik Neilsen, global chief economist at Unicredit. «And that will be a function of how deeply the economy collapses."

The limits of any half-way system hinge on domestic depositors' anxiety and the risk of accelerated capital flight from Greek banks. It would be hard to calm fears of capital controls and, as per Argentina's break with its dollar peg in 2002, forced conversion of euros in Greek banks into new drachmas.

But this is where the story changes. Depositor concerns in Greece could well infect other periphery euro economies and cause consternation - upping the ante for euro policymakers to respond, either through fresh action from the European Central Bank to reliquify banks or open-ended government bond buying.

RBS analysts warned on Monday that in the event of another hung parliament «Greek government IOUs could trade as proxy currency as early as July. This may then galvanize a large pro-euro vote intention into accepting Troika demands. If not, exit looms."

But they added that only returns investors to guessing about wider policy responses.

"Opening up the Pandora's box of exit means deposit risk across the periphery. The future of the euro would then be dictated by the subsequent policy response."

Seeing binary outcomes by fixed deadlines still seems a dangerous way to invest on this and daily scenario sketching is probably a safer option through a likely fraught summer period.

David Shairp, global strategist at JPMorgan Asset Management, said the situation was «incredibly fluid» but one possibility was certainly prolonged stalemate, one that may be better for world markets than a dramatic end-game but carrying all the gnawing uncertainty along too.

"Increasingly we're dealing in the realms of political economy rather than pure economy and that makes things so much more difficult for multi-asset investors."

[Reuters]

ekathimerini.com , Wednesday May 16, 2012 (10:22)  
Tax revenues up by 1 bln euros in 2nd quarter, public sector wages down
ECB bank assessment to show 6-billion-euro capital gap, Citi says
ECB vies for third time lucky in European stress tests
Cyprus GDP upgrade seen as boosting bailout exit plans
Greek private workers´ union calls 24-hour strike for November 27
The country's umbrella union representing workers in the private sector, known by its Greek acronym GSEE, on Friday called a 24-hour strike for November 27 to protest austerity measures bein...
Finance Minister appeals for support for amendments ahead of vote
Finance Minister Gikas Hardouvelis on Friday called on MPs across the political spectrum to support a series of legislative amendments proposed by his ministry, including a recommendation to...
Inside News
SOCCER
Panathinaikos snatches point at Eindhoven
Panathinaikos offered its fans a glimpse of its glorious past in European competitions snatching a draw at PSV Eindhoven, on an otherwise bad night for Greek soccer in the Europa League, as ...
BASKETBALL
Greens succumb to first loss at Bayern
Panathinaikos’s unbeaten run in all competitions came an end on Thursday as the Greek champion lost 81-75 at Bayern Munich for the Euroleague. Bayern is a team that improves every year, and ...
Inside Sports
COMMENTARY
Tension for tension’s sake?
It is evident that Turkish President Recep Tayyip Erdogan feeds off tension. He would barely have achieved as much as he has – and prevailed – if he had not been so keen to confront a series...
EDITORIAL
Testing ground
The Regional Authority of Attica is a good testing ground for politicians who appear to thrive on accusations to prove whether they can actually solve major problems of a practical nature. T...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Tax revenues up by 1 bln euros in 2nd quarter, public sector wages down
2. Greek private workers´ union calls 24-hour strike for November 27
3. Finance Minister appeals for support for amendments ahead of vote
4. Credit line only open to Greece if it meets economic targets, sources say
5. ECB bank assessment to show 6-billion-euro capital gap, Citi says
6. Venizelos slams Turkey for ´flagrant violation of international law´ off Cyprus
more news
Today
This Week
1. Woman killed in tram accident in Floisvo, south of Athens
2. Clocks to go back 1 hour on Sunday
3. ECB vies for third time lucky in European stress tests
4. Cyprus GDP upgrade seen as boosting bailout exit plans
5. Venizelos slams Turkey for 'flagrant violation of international law' off Cyprus
6. Cyprus president to be released from hospital on Friday following readmission
Today
This Week
1. The past, present and future of the Greek debt crisis
2. Greece’s closed society is central to its current malaise
3. Coalition shooting itself in the foot
4. Greece must stick to reforms, says Schaeuble
5. At least 11 banks to fail European stress tests, three in Greece, report says
6. Cyprus to block Turkey's EU talks after EEZ violation
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.