Stick your finger in a hole in the leaky eurozone dam and you get squirted in the face by next one that appears.
The electricity company (EAC) last night approved a state request for a €100 million loan following a stark warning that without the cash the government would default in the next few days.
“If these additional financing needs are not secured we will be talking about a state default in the next few days,” finance ministry permanent secretary Christos Patsalides told the House Finance Committee earlier yesterday.
Patsalides said this would also drag semi-government organisations under, since it would put the state into selective default and annul any guarantees given to them. Telecommunications company CyTA had already agreed to lend the state €100 million – through three-month bonds – on condition that the EAC would also chip in. The ports authority has also pledged some €38 million. The cash will come from the workers’ pension funds.
…
The finance ministry said it needed €420 million in total to cover its short-term needs. Some €300 million were needed in the coming days. Around €170 million have been secured from other sources, Patsalides told MPs.
It is understood that the bulk of that cash came from two foreign banks operating in Cyprus. Patsalides said it was important for a decision to be made in the next 24 hours.
The permanent secretary said that one ratings agency had already asked for a telephone conference after the finance committee meeting since they considered that not securing the cash would constitute a credit event – this occurs when an organisation defaults on an important transaction.
So Cyprus has some short-term cash borrowed from various sources, but it certainly doesn’t sound as though it is going to last very long. Europe, however, doesn’t appear to be in to much a rush to help
Agreement on the terms of Cyprus’s long-awaited bailout of as much as €18bn from its eurozone partners now appears likely to be delayed until after presidential elections in February 2013, leaving the country with precious little time before it faces the challenge of repaying a €1.4bn 3.75% bond in June.
Since current President Dimitris Christofias requested aid six months ago, Cyprus has been unable even to auction Treasury bills to its banks. Instead it has been relying on a €2.5bn 4.5% four-year loan from Russia, agreed at the end of last year, and €1.2bn of other bilateral private placements.
“The problem of Cyprus is serious and we are tackling this problem in a serious way,” said Jean-Claude Juncker, president of the Eurogroup, last Thursday. “I don’t want to lock us into an overly strict timetable. But we will work to find a solution as quickly as possible.”
The country’s debt of €14.7bn equates to 86% of its GDP. However, at least €10bn is needed to recapitalise its banks after Bank of Cyprus and Cyprus Popular Bank took losses on their holdings of Greek government bonds in Greece’s private sector debt restructuring in March.
That, combined with at least €1.5bn to meet budget deficits and €6bn to cover bond redemptions over the next three years, would push total debt to more than 140% of GDP, which eurozone leaders and the IMF regard as unsustainable.
Back on December 10th PIMCO released an assessment of the capital requirements of the Cypriot banking sector and estimated it at between €9.1bn and €9.5bn. This may not sound like that much in comparison to other bailouts but it must be remembered that the country’s GDP was only €24.7bn in 2011. In comparative terms this is equivalent to Australia requesting $600bn.
I can only assume Cyprus, like Greece, will finally be given some form of external help by the EU, but to add to the complexity of the issue Cypriot government members have already flagged the possibility of a Euro exit if they judge conditionality too harsh.
So ‘Grexit’ out, ‘Cyprexit’ in ? Maybe, but that would assume Greece is now back on a sustainable path to recovery. Unfortunately a read of the latest Troika review of the country contains a very dour assessment of the current program with the usual dose of delusion thrown in for good measure.
After the February 2012 agreement on a Second Economic Adjustment Programme and the large-scale debt restructuring operation in March 2012, a period of extreme uncertainty surrounded the implementation of the programme. With Greece facing a very stark choice, a three-party coalition emerged from the 17 June elections with the mandate to secure Greece’s future in the euro area, and hence to implement the economic adjustment programme resolutely. However, given the substantial delays accumulated after the double electoral cycle, the overall implementation of the second programme remained partial for a long period. Nonetheless, there has been a significant catching-up over the past few months. With the recent crucial decisions and the extent of the commitments under the new Memorandum of Understanding (MoU), Greece has revamped its reform effort and fulfilled important conditions. The reform effort must continue, in order to address the challenges Greece faces.
The extreme uncertainty about the Greek developments impacted the economy, even beyond Greece, and this still affects the programme looking forward. Since early-2010, Greece has achieved a very substantial fiscal adjustment. The performance in implementing structural fiscal reforms however has been mixed.
The fiscal targets for 2013-16 have had to be revised to take into account the deeper and longer-than-expected recession. To achieve the revised medium-term fiscal targets, the MTFS 2013-2016 sets out a very large, front-loaded and mostly expenditure-based fiscal consolidation. A long-overdue income tax reform aimed at enlarging the tax base and simplifying the tax system is also being finalised.
On fiscal structural reforms, the government has revamped its efforts through a comprehensive reform programme. Significant action has already been taken to reform the Greek labour market and further efforts are being made to reform severance payments and minimum wages. Privatisation proceeds have been disappointing so far, but the privatisation process has regained some momentum since September 2012. While significant progress has been made in a number of respects, the banking sector situation remains fragile.The outlook for the sustainability of Greek government debt has worsened compared to March 2012 when the second programme was concluded, mainly on account of a deteriorated macro-economic situation and delays in programme implementation. The international assistance loans disbursed so far to Greece amount to EUR 148.6 billion. Implementation risks to the programme remain considerable. The Commission services recommend disbursement of EFSF funds, broadly corresponding to the planned second, third and fourth tranches of the second programme, conditional on continued implementation of the commitments undertaken by the Greek authorities as specified in the revised MEFP and MoU.
And the latest we know about Greek GDP .
Greece’s economic slump deepened in the third quarter, with output shrinking 7.2 percent on an annual basis as the debt-laden country heads into its sixth year of depression and struggles to meet its bailout targets.
The contraction was deeper than the second quarter’s 6.3 percent drop and follows the passage of a tough 2013 budget by Prime Minister Antonis Samaras’s government that is expected to continue to smother growth for most of next year.
So GDP continues to shrink, in fact accelerate downwards, into a recession/depression that the Troika themselves has continually failed to predict the severity of. In the meantime the report states that 2013-16 will contain a “very large, front-loaded and mostly expenditure-based fiscal consolidation” in which the “2013 fiscal gap has been closed by identifying more than EUR 9.2 billion of viable measures, around 5% of GDP”. Sound credible ? How about these growth forecast ?
Full report below
The Second Economic Adjustment Programme for Greece – First Review