Greece, not again?

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Investors are complacent about the risk of contagion spreading from Greece to global markets, according to a Barclays survey of 899 global investors. More than half the respondents believe that a Greek exit from the eurozone will be only a small negative for global markets because Greece is small and buffers are now in place to limit contagion.

Grexit complacency, charted | FT Alphaville

Those who actually believe in European monetary union need to understand on Monday that pushing the Greek government further than their current position will generate infinitesimally small financial gains for European citizens while risking a Greek exit threatens unquantifiably large potential costs.

Grexit complacency, charted | FT Alphaville

Investors should be concerned about the Greek debt crisis because the fallout could roil markets, the portfolio manager at Quantitative Management Associates said Wednesday. "I think you've got to care about it because if we don't get a deal and Greece stumbles out of the euro zone, we're going to see significant market repercussions," Edward Campbell told CNBC's "Squawk Box."

Why investors should care about Greece: Expert

History repeats itself, first as tragedy, then as farce, and finally as trolling. That, at least, appears to be the case in Greece, where its lenders want it to cut its pensions rather than hike its business taxes, because they're afraid those increases would, as the Financial Times's Peter Spiegel reports, "crimp economic growth." There is a certain irony to Europe starting to worry that austerity is hurting Greece's economy. For years, Europe's leaders have insisted Greece cut deficits in exchange for concessions. Greece's economy has already shrunk 25 percent, and it is having trouble honoring its obligations in part because it has had so much austerity.

Europe is destroying Greece’s economy for no reason at all - The Washington Post

What depresses us is how little attention has been paid to one major area of Greek government spending that seems ripe for the ax: defense spending.  Greece spends a whopping 2.2% of GDP on defense, more than any NATO member-state save the United States and France.  Bringing Greece into line with the NATO average would alone achieve ¾ of what the IMF is demanding through pension cuts.

Greece fact of the day

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"Euro/dollar has been going up since mid-March. That basically tells you that the market is taking the view that Greece is not that relevant for the euro," Vasileios Gkionakis, head of global currency strategy at Unicredit, told CNBC's "Squawk Box Europe" on Thursday.

If Greece is in crisis, why's the euro so strong?

Here's more on IMF chief Christine Lagarde's comments to a French magazine (via Reuters): Lagarde said a Greek economic recovery would require not only Greek reforms but also steps by European creditors to make the country's debt sustainable. However, she said the Greek plan had to be credible. "You can't build a programme just on the promise of improved tax collection, as we have heard for the past five years with very little result," she told the magazine. Lagarde said she did not want Greece to leave the euro zone and did not believe in any euro zone "explosion". She also said Greek Prime Minister Alexis Tsipras was well aware that Greece's pension system was not sustainable and needed to be reformed, adding there was no question of cutting small pensions. "They must be protected," Lagarde said.

Latest on Greece: Deal in doubt, deadline looms

Dennis Gartman said Thursday that Greece would be better off defaulting and exiting the euro zone. "If I were the Greek prime minister I would have defaulted long ago and left because at least I then know I can get my currency back, I can devalue it, my textile industry becomes competitive, my tourism industry becomes competitive again, my shipping industry becomes competitive," the publisher of the Gartman Letter said on CNBC's "Squawk Box."

Gartman: Greece would be better off defaulting

Portugal is the ticking time-bomb waiting to explode. Why? Because the country has run up unsustainable debts, most of the money is owed to foreigners, and with the economy still in deep trouble it may have to default as well. The elections later this year may well trigger the second Portuguese crisis — and that will reveal how the problems in Europe involve far more than just Greece, even if that attracts most of the world’s attention.

Forget Greece, Portugal is the eurozone’s next crisis - MarketWatch

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The Portuguese are close to unique, in both having very high debts, and most of it being owned abroad. Nor does it just end there. Once household and corporate debt is added into the equation, Portugal has more debt in total than any other eurozone country, Greece included (which mainly has government debt to deal with).

Forget Greece, Portugal is the eurozone’s next crisis - MarketWatch

All the evidence suggests that, once the debt-to-GDP ratio climbs into the 130% bracket and above, it is basically unsustainable. A country has to grow at 3%-plus simply to keep its debts at the same level — and there is absolutely nothing to suggest Portugal can achieve that or anything like it.

Forget Greece, Portugal is the eurozone’s next crisis - MarketWatch

The Fund's standard modus operandi is a tried and tested pincer movement – structural reforms and austerity on the one hand, debt forgiveness and currency devaluation on the other. But the Greek programme was all stick and scant carrot. The IMF has found itself trapped in the middle, attempting to extract sustainable reforms from Greece while urging its creditors towards some form of debt relief.

Blame game might be Greece's last best chance of staying in the euro - Telegraph

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In the past, every time the situation has come to a head, Greece has caved. And, in the process, it has transformed itself into little more than a financial slave state mired in an economic depression. There is no way Greece will ever be able to cut its way to prosperity, Krugman argues. And history suggests that any argument to the contrary is crazy. Given that Europe refuses to restructure Greece's debt in a sustainable way and allow the country to try to grow its way out of its misery, Greece has no choice but to default and withdraw.

KRUGMAN: Europe is nuts, Greece is smart - Business Insider

Whatever the eventual outcome of the Greek debt talks, there are a number of judgments can already be made; one is that a large part of the blame for this ever deepening debacle lies at the doors of the International Monetary Fund, which from the very beginning has had both its priorities and its analysis of the situation hopelessly wrong.

IMF heads must roll over shameful Greek failings - Telegraph

From the start, the IMF’s involvement has been a succession of misjudgments and over-optimistic predictions that together both prolonged and deepened the eurozone’s wider failure. Yet there is one original deceit from which all the others spring; all along, the IMF’s approach has been much more about saving the euro than saving Greece. IMF programme countries are always subjected to harsh medicine – that’s taken as read. But also key to setting insolvent nations back on their feet is debt restructuring, usually involving some degree of forgiveness, and devaluation. Greece has had only a little of the former and none of the latter.

IMF heads must roll over shameful Greek failings - Telegraph

A Greek exit could lead to a humanitarian crisis on Europe's southern rim, spark contagion in euro countries that are only just emerging from years of deep recession, and stoke a fiery new debate about German austerity policies and Merkel's handling of the crisis. Allowing Greece to exit would be by far the boldest move she has taken since coming to power nearly a decade ago, far riskier than her decision in 2011 to phase out nuclear power. In private conversations Merkel has acknowledged as much, saying her biggest fear is that Germany could be blamed for "blowing up Europe" for the third time in a century.

Angela Merkel is facing her biggest risk yet with the 'Grexit' - Business Insider

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Serbia (formerly part of Yugoslavia) and Bulgaria, which borders Greece to the north east, were named as the most vulnerable frontier markets to a Grexit, "particularly if it leads to financial stress in the wider euro zone." Romania, located to the north of Bulgaria, was also named as among the most at risk from a Grexit.

‘Grexit’ may endanger these surprise countries

It is clear that Europe will keep the Greek boat afloat through the referendum, and rightly so. It’s a lot of legalistic flexibility and patience, but – in my opinion – it’s the right thing to do. But next Sunday is decision time for the Greek population.

Greece: bank analysts and eurowatchers on what to expect on Monday (UPDATED) | FT Alphaville

On Tuesday 6pm Washington time, the Greek government will almost certainly miss its EUR 1.6bn payment to the IMF, and while it’ll be a month before all the normal procedures for arrears and all roll out, they will have joined that sad club of failed states in terms of relations with the IMF.

Greece: bank analysts and eurowatchers on what to expect on Monday (UPDATED) | FT Alphaville

First up is the IMF payment on 30 June. Missing an IMF payment is not technically defined as a default by credit rating agencies. Furthermore, under normal IMF conditions a missed IMF payment is not registered as such for a while.

Greece: bank analysts and eurowatchers on what to expect on Monday (UPDATED) | FT Alphavill

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Around 300,000 businesses have closed in Greece since the start of the financial crisis. Those that remain are often small, family-run affairs. In the face of tumbling consumer spending, higher costs and debt, many are just hanging on by a thread... Greek banks have 215 billion euros ($240 billion) of loans on their books, and at least 80 billion euros have turned bad, according to the Bank of Greece.

These Are the Businesses That Owe Billions to Greek Banks - Bloomberg Business

We would make three points about the ECB’s likely response. First, the ECB’s tolerance of deteriorating financial market conditions in the Euro area, that are driven by developments in Greece, is likely to be very limited. Hence, it could move very quickly from today’s verbal warning to announcing a policy response. Second, which tool the ECB will use in the event of contagion will depend on the severity and the form of such contagion. Hence, it will matter whether any contagion occurs via bond markets or via banks, and how it is distributed across countries. The ECB is likely keeping an open mind until it sees how financial markets respond. Third, as we noted recently, the ECB pledge today to use all instruments available “within its mandate” has been greatly expanded by the recent ruling of the European Court of Justice (ECJ), opening the door to targeted interventions that could be described as an Anti-Contagion Purchase Programme, or ACPP. Hence, the ECB has options other than simply expanding QE or activating OMT.

Greece: Analyst views on capital controls, bank holidays | FT Alphaville

Greek officials said they are seriously considering suing the European Central Bank itself for freezing emergency liquidity for the Greek banks at €89bn. It turned down a request from Athens for a €6bn increase to keep pace with deposit flight. This effectively pulls the plug on the Greek banking system. Syriza claims that this is a prima facie breach of the ECB’s legal duty to maintain financial stability. “How can they justify setting off a run on the Greek banking system?” said one official.

Greece threatens top court action to block Grexit - Telegraph

Apparently, there was the basis for a deal at some stage last week; but then at the last moment, in comes the International Monetary Fund to say that the conditions were not enough, and insist on the addition of a whole series of demands on pensions reform that were bound to be unacceptable to Greece’s Syriza-led government.

For Greece's international creditors, regime change is the ultimate goal - Telegraph

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It’s not that the troika won’t do a deal with Greece, it’s just that it won’t do a deal with Syriza. Even if the basis for one could be found, the IMF, the European Commission and the European Central Bank would not trust the current government to implement it. In such circumstances, they would rather not have one at all, and damn the consequences.

For Greece's international creditors, regime change is the ultimate goal - Telegraph

Thanks to austerity imposed since 2010, Athens has accomplished a primary national budget surplus. Spending, net of interest payments, is about 1 percent of GDP, and private-sector wages have fallen some 25 percent. Contrary to the predictions of German Chancellor Angela Merkel and IMF Managing Director Christine Legarde, those have not rekindled growth. GDP is down 25 percent and national debt has soared from 130 to 180 percent of GDP. Servicing that debt would require a primary surplus of almost 6 percent of GDP — assuming creditors would accept a paltry 3 percent on bonds — and send Greece into a death spiral.

Why Greece must default or restructure its debt—commentary

Has the IMF's austerity program worked so far? No. Austerity has been the rule in Greece since the first debt-restructuring program was approved in 2010. But Greece's unemployment rate has nearly tripled since, and annual gross domestic product has dropped 100 billion euros, or almost 30 percent. Greece's slashed spending and tax hikes brought the nation's "primary deficit," or deficit before debt-service payments, into surplus territory in 2010. But the program was the equivalent of slamming on the economy's brakes: Output dropped so rapidly that the primary deficit is now again 2 percent of Greek gross domestic product even with tough controls on spending. That's not much different than the U.S., but the U.S deficit as a percentage of output is declining because the U.S. economy Is growing.

7 things investors need to know about the Greek crisis

Following a “no” vote, Greece would at the very least be subject to prolonged capital controls, and the Greek government would likely be forced to pay salaries in IOUs rather than euros. Without an aid package, Greek bank deposits would stay locked up indefinitely. Higher public spending promised by Greece’s far left government would only be possible if Greece converts to its own currency and begins printing it; if so, existing bank deposits would be compulsorily converted to a rapidly depreciating new Greek drachma, dramatically eroding the value of Greek citizens’ financial assets. Faced with this reality, Greek voters will likely act in accordance with the opinion polls that have long shown them to prefer staying in the E.U. and Eurozone to Grexit.”

Greece Riles Markets, But Grexit Risk Low? - Emerging Markets Daily - Barrons.com

“The International Monetary Fund, the European Commission, and the European Central Bank relieved Greece of 107 billion euros ($119.85 billion) in debt. … The Greek government has debts that include €38.7 billion borrowed from private investors, €15 billion from Greek banks, €31.8 billion from the International Monetary Fund, €19.8 billion from the European Central Bank, €7.2 billion from national central banks in the euro zone, and €194.7 billion from euro-zone governments (including €57 billion from Germany, €43 billion from France, €37.7 billion from Italy, and €25.1 billion from Spain). Some of the borrowing has been turned around to repay older debt, for net obligations of nearly €250 billion.”

Greece Riles Markets, But Grexit Risk Low? - Emerging Markets Daily - Barrons.com

Just imagine a Greek shepherd, in between milking his ewes and goats and preparing that delicious feta cheese, taking a look at the list of prior actions that the country's creditors had asked Greece to do, in order to make up his mind on how to vote in the referendum.  The Greek shepherd would have to be at ease with notions such as "medium-term fiscal strategy" or "decompressing the wage distribution across the wage spectrum," and ponder carefully whether it is a good idea to adopt "a holistic NPL resolution strategy, prepared with the help of a strategic consultant." What sort of politician, having been elected by his people to deal with bailout negotiations, throws responsibility for a complex, technical deal back to the people in the 11th hour of talks that are so important for the country's economy that breaking them off leads to imposing capital controls?

Use the Greek Debt Crisis to Dismantle the Eurozone - TheStreet

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The creation of the euro has been an error of historic dimensions and done great harm to the EU, which in its first 40 years had brought economic prosperity to the citizens of the Continent. Then the less well-off countries benefited from the lowering of tariffs and the increase in internal trade. After the creation of the euro, however, economic growth slowed markedly. Poorer countries fared worse than the more prosperous countries, like Germany, which benefited from the new, weaker currency.

The euro was doomed from the start - Telegraph

German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin that Greece would stay in the euro for the time being if Greek voters reject austerity in a referendum scheduled this week, according to three people present.

Greece Can Stay in Euro Even With ‘No’ Vote, Schaeuble Tells Lawmakers - Bloomberg Business

The story is no different for Greece in 2015 when the servicing costs are projected to be €23.4 billion. That's lower than five of Greece's euro area counterparts. In theory, it would seem that Greek debt is perfectly sustainable -- at least, in relation to quite a few other countries.

In Theory, Greece Is Fine - Bloomberg Business

Treasury sources conceded that Greece could request help from a balance of payments support system available to all 28 EU members to relieve its public finances. Britain pays into the scheme, which has previously been used by Hungary, Latvia and Romania.

George Osborne spearheads assault to stop Greece 'suicide’ - Telegraph

On July 13, another €465 million is due to the IMF. Most crucially, on July 20 it must find €3.5 billion to pay the European Central Bank. Failure to do so would be likely to result in €88 billion of emergency loans to Greek banks being withdrawn, resulting in collapse and 'Grexit', the exit of Greece from the euro.

George Osborne spearheads assault to stop Greece 'suicide’ - Telegraph

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Germany alone accounts for 57 billion euros in two bailout programs. Germany is also the biggest shareholder in the European Central Bank (ECB), which has provided 118 billion euros in liquidity to Greek banks, the bank's head Mario Draghi recently said.

How Greece went bust - Business Insider

The Germans fretted that Jean-Claude Juncker, the Commission's president, might be too amenable to Tsipras. When Juncker had met the newly-elected Tsipras in February, he had greeted him with a kiss and led him off by the hand to a meeting. One senior German official joked: "If Juncker could decide for himself, we would have a pure financial transfer (of money from Germany and other countries) to Greece for the next 10 years."

How Greece went bust - Business Insider

My analysis was based on a comparison of economic costs and benefits of a country exiting the euro. The costs, I concluded, would be severe and heavily front-loaded.

Path to Grexit tragedy paved by political incompetence

Greek Prime Minister Alexis Tsipras and his creditors sparred heading into Sunday’s referendum on austerity as a poll suggested voters are inclined to accept deeper cuts. As rationing of pensions began in the first week of capital controls, a poll showed a narrow majority going against the government’s wishes in order to keep the euro. A late compromise bid by Tsipras, who’s urging citizens to vote “no,” was roundly quashed by the rest of the euro region, meaning negotiations will have to wait until after the plebiscite.

Europe Rebuffs Greek Overture as Poll Shows Voters Leaning ‘Yes’ - Bloomberg Business

But the German chancellor ruled out what many economists, and the Greek finance minister, saw as the most practical solution to Greece's immediate cash crunch. That idea was to allow the euro zone's bailout fund, the European Stability Mechanism (ESM), to pay off the loans from the IMF and to take over Greek government bonds held by the ECB. Both sets of debts could be replaced with lower-rate, longer-term loans from the ESM.    Merkel told Lagarde the idea would be unacceptable to Berlin and to others in the euro zone, according to a person familiar with the German position.

How Greece went bust - Business Insider

Tourism is crucial. It’s Greece’s largest industry. It’s the only major industry still growing. It’s vibrant, hardy, and resourceful. It has successfully dodged the economic miasma of the last few years. No government has been able to kill it, unlike some other industries. It accounted for 17.3% of GDP in 2014 and for 9.4% of total employment, according to the World Travel and Tourism Council. The industry also supports numerous jobs outside the industry; direct and indirect jobs combined contributed 19.4% to total employment. “This is expected to rise by 3.9% in 2015,” the report added.

Greece’s Largest Industry Suddenly Takes a Terrible Hit | Wolf Street

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This is precisely what Goldman's Franceso Garzarelli, co-head of macro and markets research, admitted earlier today in an interview on Bloomberg TV, when he said that the ECB "will have to go big" if the situation in Greece worsens and leads to wider peripheral bond yield spreads. He added that a close call or "no" vote at referendum will cause spread widening which as a result of the complete lack of bond liquidity borne out of the ECB's intervention and soaking up of government bond collateral, "the market is not deep enough to accommodate a rotation in risk at this point in time."

Goldman: "ECB Will Have To Go Big" | Zero Hedge

Alas, all these growth assumptions for 2015 now look sadly obviated by events. Because tourism is suddenly collapsing after the government’s decision to hold a referendum, shut banks, and default on its payment to the IMF, the Ekathimerini reported

Greece’s Largest Industry Suddenly Takes a Terrible Hit | Wolf Street

Sir, Memory. No memory of life before the financial crisis; politics has dominated it ever since. But now I can hardly remember life before Friday night. Fear. I am terrified of tomorrow, all I now see is black. Uncertainty, leading us through our days, every remainder of hope for a brighter future being destroyed by the minute. I look at my three-year-old niece, I envy her ignorance, I envy her age. I am 21 years old and the past few days I feel tired by life. A referendum that supposedly gives me the right to define my future, seems to have taken it away.

The past five days have been worse than all that has gone before - FT.com

As the Greek crisis evolves, it is important to understand that a successful structural adjustment programme requires strong country ownership. Even if negotiators overcome the most recent sticking points, it will be difficult to trust in their implementation if the Greek people remain unconvinced. That has certainly been the experience so far.

Lessons from Greece and other unsuccessful bailouts | Business | The Guardian

The International Monetary Fund has electrified the referendum debate in Greece after it conceded that the crisis-ridden country needs €50bn (£35bn or $55bn) of extra funds over the next three years and large-scale debt relief to create “a breathing space” and stabilise the economy. With three days to go before a knife-edge referendum, the IMF revealed a deep split with Europe as it warned that Greece’s debts were “unsustainable”.

IMF says Greece needs extra €50bn in funds and debt relief | Business | The Guardian

The Fund has traditionally viewed debt relief as an integral part of any package to improve the economic prospects of a country seeking help, but it has met resistance from European governments fearful that the cost would have to be met by their own taxpayers.

IMF says Greece needs extra €50bn in funds and debt relief | Business | The Guardian