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5 Feb 2015
Greece’s discussions with ECB failing - TDS
FXStreet (Guatemala) - Analysts at TDS explained the circumstances around Greece's discussions with the ECB.
Key Quotes:
"ECB decision to no longer provide waivers on using Greek bonds as collateral at face value is an accounting identity, which shifts Greek borrowing from the ECB’s balance sheet to the national central bank."
"The message, however, is that if Greece wants to rewind and renegotiate the entirety of the current program, those negotiations will take place from initial conditions and not under the umbrella the ECB has provided."
"Borrowing from the ECB was only allowed because of expectations a program would remain in place. With that gone, the ELA becomes the appropriate, higher cost vehicle, to fund Greek banks."
"The pressure is now on the Greek government to come to the finance ministers and Leaders Summit on February 11-12 with more concrete details of how they would fund revenues to offset the austerity they are unwinding."
"Two-thirds of ECB Governing Council members must agree that Greek issues are solvency-related rather than liquidity in order to turn this lifeline off, so it should remain in place as long as Syriza avoids either active debates of leaving the Eurozone or defaulting."
"The true deadline for agreement now is Greece running out of cash. This had been expected in July and August, when Greece has over €6.5bn in redemptions. However, with a squeeze on tax receipts and rapid deposit outflow, there is a risk that the cash crunch on the Greek government is more severe, presenting a risk that Greece will actually fall short of cash between the €600mn in coupons on February 24th or IMF repurchases starting March 6th."
"The most constructive outcome at this stage is likely to be more details from Greece next week, which is then negotiated into broad agreement on principles before the end of February. That would provide the market reprieve, as well as an allowance to increase their bill issuance by a further €4-5bn over the next three months to allow time for finalizing every detail."
Key Quotes:
"ECB decision to no longer provide waivers on using Greek bonds as collateral at face value is an accounting identity, which shifts Greek borrowing from the ECB’s balance sheet to the national central bank."
"The message, however, is that if Greece wants to rewind and renegotiate the entirety of the current program, those negotiations will take place from initial conditions and not under the umbrella the ECB has provided."
"Borrowing from the ECB was only allowed because of expectations a program would remain in place. With that gone, the ELA becomes the appropriate, higher cost vehicle, to fund Greek banks."
"The pressure is now on the Greek government to come to the finance ministers and Leaders Summit on February 11-12 with more concrete details of how they would fund revenues to offset the austerity they are unwinding."
"Two-thirds of ECB Governing Council members must agree that Greek issues are solvency-related rather than liquidity in order to turn this lifeline off, so it should remain in place as long as Syriza avoids either active debates of leaving the Eurozone or defaulting."
"The true deadline for agreement now is Greece running out of cash. This had been expected in July and August, when Greece has over €6.5bn in redemptions. However, with a squeeze on tax receipts and rapid deposit outflow, there is a risk that the cash crunch on the Greek government is more severe, presenting a risk that Greece will actually fall short of cash between the €600mn in coupons on February 24th or IMF repurchases starting March 6th."
"The most constructive outcome at this stage is likely to be more details from Greece next week, which is then negotiated into broad agreement on principles before the end of February. That would provide the market reprieve, as well as an allowance to increase their bill issuance by a further €4-5bn over the next three months to allow time for finalizing every detail."