Tuesday March 3, 2015 Search
Weather | Athens
20o C
11o 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)  
Greece poised for recession as uncertainty takes its toll
Ministry denies Varoufakis spoke to creditors to discuss Eurogroup
Greece’s week before March 9 meeting of euro finance ministers
Greece’s bailout extension no panacea for struggling bond market
Talk of third Greek bailout gains ground in Europe
Fresh talk of a third international bailout for debt-hit Greece spread through European capitals on Tuesday, despite Brussels insisting it was far too soon to start discussing any new rescue...
Prosecutors suggest conditional release for GD’s Michaloliakos, Pappas
Two public prosecutors on Tuesday suggested the conditional release of Golden Dawn chief Nikos Michaloliakos and the party’s second-in-command, Christos Pappas, after their 18-month maxim de...
Inside News
BASKETBALL
Waters turns from zero to hero for Kolossos Rhodes
For 40 minutes he was a real disappointment for his coach, Aris Lykoyiannis. His shooting rate was a miserable 1 in 10 two-point shots and he had made no three-pointers. On top of that he co...
SOCCER
Super League clubs promise to combat violence, again
The Super League clubs agreed on Monday to a blueprint of proposals for combatting violence in soccer grounds and will present it to Deputy Minister Stavros Kontonis to ask for the top fligh...
Inside Sports
COMMENTARY
Greece and the four month window of opportunity
As the dust begins to settle after the Eurogroup agreement extending the loan facility to Greece by four months, it is a good moment to have a look at where we should go from here. Much has ...
COMMENTARY
The Greek tax drama
Numbers alone can never interpret reality, not even a strictly financial one. Besides, the art of creative accounting has a number of fans in this country, many more, for the time being, tha...
Inside Comment
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Talk of third Greek bailout gains ground in Europe
2. Greece poised for recession as uncertainty takes its toll
3. Ministry denies Varoufakis spoke to creditors to discuss Eurogroup
4. Prosecutors suggest conditional release for GD’s Michaloliakos, Pappas
5. Suspected pedophile arrested in Athens
6. Greece’s week before March 9 meeting of euro finance ministers
more news
Today
This Week
1. The Greek tax drama
2. Draghi’s QE moves to starting line as economic outlook brightens
3. Varoufakis to make six reform proposals at Monday's Eurogroup
4. Convicted Conspiracy of the Cells Fire member to face magistrate
5. Investor survey shows 38 pct chance of eurozone break-up in 12 months
6. Greece approved as recipient of EBRD funding through 2020
Today
This Week
1. Greece to make international protest over Turkey reserving Aegean air space
2. A fierce battle looms
3. SYRIZA feeling the pain
4. Spain said to lead push to hold Greece to terms as Podemos grows
5. The unlikely winners of Greece's surrender on euro
6. Tsipras reversal draws Greek sympathy as party rumblings rise
Advertiser Link
“AMF” PROJECT FINAL CONFERENCE-REGIONAL UNIT OF THESPROTIA
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2015, H KAΘHMEPINH All Rights Reserved.