Thursday, 17 November 2011

Greece. A New Dawn?

PM Papadimos

Greece has a new PM. The former deputy of JC Trichet got 255 votes out of 300 in the Greek parliament yesterday. Papadimos marks a significant change in Greek politics. For a start, he had a proper job for most of his life and advanced academic qualifications to back it up. Contrary, to his predecessor he knows what a bond is and he has dealt with debt all his life. He is not an academic economist but a finance practitioner. Greece is full of armchair-economists (many have become Finance ministers in the past) that proclaim their superhuman wisdom. At least Papadimos is experienced in the markets and the limitations they impose on theory.
In other words, no-one is questioning his ability to grasp the problem (like Papandreou) and come up with a solution but whether he would be left to do his job by his coalition backers. The signs are not good. He was not allowed to pick his own cabinet and instead he had to rely on mostly the same ministers (PASOK) that failed to deal with the issues. His popularity approval is high but this may be a hindrance. The two main parties may see this as a political threat to their miserable existence and try to undermine him.
At least now Greece has a serious PM that is well known in Europe and no-one can question his European credentials. He after all helped to create the only real institution in Europe, the ECB.

Unfortunately, his mandate would not go beyond February 2012 and this is not enough time to effect any real change. The best Greeks can hope is to implement the PSI and to secure the next instalment. Any real structural changes would have to wait either for a new administration or would be forced by the default.


Papadimos first task is to push for the new PSI agreement. Given that he has been an outspoken critic of the haircut it would be interesting to see how he is going to manage it. As an ex-ECB board member we think that he would be reluctant to include the holdings of the ECB in the PSI.
As a banker he may be more lenient towards Greek banks that would carry the bulk of the painful haircut.
There are many scenarios currently circulating and the head of the IIF Mr Dalara was in Papadimos office only hours after he received the confidence of the parliament.

PSI Variations 
  •    Bonds maturing after 2020 may have higher than 50% haircut.May be a cash (10%) and the rest of the new bonds guaranteed by the EFSF
  •  For bonds maturing before 2020, a 15% cash upfront. For bonds maturing up to 2014, a 20% cash
  • For long term bonds (30Y) a 30-40% cash upfront 
  • New bonds would have a 6% yield 
  • For Bonds in Greek banks and pension funds a different haircut (37%) and bonds with an 8% coupon.

It is early days to see what is going to happen, but one thing is for sure. The old options of PSI-1 are no longer applicable.
It would be interesting to see if they would pretend to keep the voluntary nature of the exchange or whether they would drop it and go for a full coercive restructuring. This may become necessary as participation would become problematic. A 50% haircut plus a bond swap with more Greek risk is far too big to swallow especially if you have already written down your holdings to that level.

Papandreou managed in the end to get the hint from Europe and resigned his Premiership. He did so reluctantly and not before he made various attempts to install his chief-gardeners as interim PM (Petsalnikos, Kaklamanis). The writing for him was on the wall ever since the end of August when the Troika refused to release the 6th instalment. Knowing that they were no significant redemptions till December it was a bold hint at Papandreou to go. He was becoming part of the problem and not the solution.

The truth is that Papandreou never made any attempts to deal with Greece’s issues despite his cries for the opposite. He spent most of his time shuttling around and in making bets and upping the stakes. He never really believed in reforming the economy. All he did was to ask for more bailout money and to blame everyone else (Conservative opposition, Hedge funds, Markets, Capitalists, Media, Conspiracy forces etc.) for his shortcomings. He understood the problem only form the political side of it ignoring the fact that there are 360billion missing from his Greece’s pocket.

It would be a gross mistake however, to write Papandreou off. One would expect that after his resignation the PASOK party would move fast in electing a new leader for the new era. Wrong. Mr Papandreou is slowly becoming the vampire of the PASOK party that may haunt Greek politics for considerable time. He is dead but not buried. Neither he or his party has moved on.

Samaras (Leader of Conservative opposition)

Despite the monumental mistakes that Papandreou made, especially his last referendum idea, Samaras failed to capitalise politically. His anti-Troika rhetoric is populist and designed to appeal to his xenophobic ignorant audience. He reluctantly agreed on a coalition interim government but said that he did not care who would be the PM. This is not responsible behaviour from someone who eyes the Premiership. Samaras’s only fixation was to remove Papandreou from the office and not to see what can be done to deal with the looming bankruptcy and exit from Eurozone. He did not want to put any front line politicians in the coalition for fear that might get burned! If ever was a need for able hands to deal with the Greek problem, now was the time. Samaras initial refusal to put experienced problem-solvers in his coalition government is criminal.

Politicians demand other politicians to keep their promises.
The latest friction came with the so-called personal guarantee to the EU. The Europeans have asked for personal signed guarantees by the Greek leaders that they are going to keep their promises. The oxymoron is that politicians are asking other politicians to keep their pre-election promises! Samaras and the leader of the smaller coalition partner (LAOS) have refused such undertaking.