Greece: Beware of Leaks

Published on May 21, 2015
SGH Insight
"Greece is still far from delivering enough to unlock funding from the last tranche of the existing program."
Market Validation
(Bloomberg 5/26/15) "German government bonds rose the most in a week as investors sought safer assets amid concern that the rise of anti-austerity parties in the euro area would deepen political turmoil across the region. In Greece, the epicenter of Europe’s sovereign-debt crisis, sliding bond prices pushed two-year note yields above 25 percent."

We would caution against getting overly worked up over leaks in Germany’s Suddeutsche Zeitung of an interim deal being prepared for Greece to provide an extension through the fall of the existing program and 4 billion euros of funding – if only Germany can be convinced to come along.

While there is no question bona fide efforts are being made by all sides to come to a resolution of the dragging impasse in negotiations with Greece, the details of the leaked article sound surprisingly similar to the “non-existent” Juncker plan floated earlier in the Greek media. Indeed the article to us appears to have imprints that look suspiciously Greek, or from Brussels.

Regardless, even the leaked proposal suggests Greece would need to come up with an additional 5 billion Euros in savings in order to qualify for any disbursement of funds. When it comes right down to it, EU officials have for some time already indicated a willingness to show flexibility on the actual mix of cuts, so long as they are anywhere even close to real and verifiable. But this still sounds a lot like fulfill the obligations, and you will get the money. VAT reform on its own certainly does not get Greece there, nor do we suspect do small concessions to date on privatizations and projected administrative tax reforms.

Prime minister Alexis Tsipras has also boldly proclaimed he will be putting forward a debt restructuring proposal before Chancellor Angela Merkel at the Riga summit commencing tonight. One would be well served to remember the November 2012 “soft promise” from the EU to perhaps, at some point, consider yet another debt re-profiling for Athens was predicated on Greece remaining on target. It will be a challenge, to put it kindly, to now make that case.

That is not to say all is lost for Greece – but rather that Greece is still far from delivering enough to unlock funding from the last tranche of the existing program (see SGH 5/19/15, “Greece: Still not Enough”). Whispering sweet nothings into Chancellor Merkel’s ear at dinner will certainly not do the job.

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