It’s all good in Greece!

All day I’ve been reading feel good pieces about Greece. At Dad’s Army first Alan Kohler and then old man Gotti, at Fairfax it’s Phil Baker,  The Pascometer and even Chris Joye is into it this afternoon:

If Greece votes to accept the troika’s deal there will likely be a prompt settlement given the collateral damage the negotiations have inflicted on the Greek economy and national morale more generally. Although a clear “yes” vote gives Tsipras a mandate to do a deal, it will also be a striking repudiation of his policy positions and negotiation approach. A new, more Euro-friendly caretaker government, which would be welcomed by continental leaders, may therefore be formed that oversees the country until fresh elections are held later in the year.

Consummating the bailout will prove that the Eurozone can resolve crises and implement the de facto fiscal policy that is missing from the monetary union while forcing members to adopt reforms that harmonise economic differences between countries. This is very positive for its longevity.

The Greeks are going to be voting on a deal that no longer exists. The Eurogroup has reiterated its June 30 deadline. There is no deal to vote on and any revival of it is very likely to drive the European agenda deeper into the Greek’s cloaca.

As for caretaker euro-friendly caretaker governments, we’ve already been there with Lucas Papademos. He was slowly removed by the Greek parliament after forcing a number of deals in favour of the creditors. He was then replaced by George Papandreou before he attempted to call a referendum and was swiftly removed from power.

The Greeks want to stay in but can’t take the pain of doing so. You can’t omit the second bit. And we’re clearly reaching some point where can-kicking no longer works.

Do not underestimate the chances and impact of Grexit. It represents a possible beginning of the end for one of the world’s largest two currencies. The implications if it is a messy exit are incalculable. The referendum is only one small piece of the puzzle and with the ECB closing the ELA, capital controls in place, an outright bank run underway and an imminent plunge into depression looming, political chaos and a huge default are front and centre for markets. That does not mean contagion is assured but it sure is possible if European banks aren’t prepared.

Bozo Joe is just as bad:

“Treasury has been engaging with the Reserve Bank, Australian Prudential Regulation Authority and Australian Securities and Investments Commission and we are monitoring the situation closely.

This is a lesson for everyone. If you don’t get your budget in shape when you can, the pain is always far greater later.

Australia’s exposure to Greece is very limited and quarantined.

There were strong messages from all of the Europeans I spoke to today to affirm that the Europeans have matters under control. There have been numerous countries that have defaulted on their IMF loans. The fundamental problem is that Greece has no willpower to undertake the reforms that are necessary to get themselves back on track.

When you compare that to Spain and Italy who have taken some reforms, you can see there is a strong contrast with what’s happened and is happening in Greece and what has happened in other parts of Europe.”

From the top:

  • Greece has undertaken far more reform than Spain and Italy, that’s why it’s so screwed;
  • the Australian Budget is not in good shape vis a global shock in part thanks to Bozo;
  • Greece may be quarantined for Australia but Europe is not and borrowing costs will rise here if they do there;
  • we don’t know who is holding what if Greece does default big;
  • does Europe look under control to you?

None of this is to say that the outcome will be terrible. It may well go smoothly. But the risk that it won’t is real and it is asymmetric.

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