Friday, 21 June 2013

Coalition Marital problems

Don’t you just love Greece. It used to be the three S’s. Sun, Sea and Sex, were the reasons most people visited Greece but now there is a new attraction called Greek politicians. Ever since they figured out, that by screwing the country they can punch far above their weight, in fact globally, they have vigorously engaged in the third S with the country.
For most of the last 12months the three parties that were previously sworn and mortal enemies (PASOK-socialists, DIMAR-democratic left, and ND-conservative) formed a coalition in order to avert the left SYRIZA party taking power. Under the leadership of Mr Samaras from the conservatives they found a compromise modus operandi. They will form a government that is to do the absolute bear minimum.
In fact they were very successful in doing the absolute minimum. The truth is that very little was done in terms of reforms these last 12 months and the coalition continued on the path set by previous administrations. But that was more than enough. The fact that there was a stable government gave a false sense of security to many, including European politicians.
However, the minute a controversial reform was initiated (closure of state TV) marital problems surfaced. After all, the coalition was formed in order to gain healing time for their party wounds.

DIMAR leaves coalition
It looks very likely that DIMAR the third and smaller coalition partner is going to leave the government. But this is not the end of  the government. ND and PASOK together they have between 153 and 157 votes (majority 151) and this is enough. Moreover, having shed the DIMAR ballast may mean faster decision making and reforms.
What is in the DIMAR’s leader’s mind (Mr Kouvelis) is hard to fathom. He changes his mind all the time. The party’s main electoral enemy comes from the left (SYRIZA) and if there were elections now chances are that DIMAR would probably not fare well.
The leader of PASOK Mr Venizelos knows that this is his party fate as well, which is why he opted to stay in the government and avoid elections till he has consolidated his own position (precarious) and PASOK’s resurrection (hard to impossible task).
The only logical inference is that by breaking away DIMAR is going to try to form a center left pole as a counterweight to SYRIZA while PASOK and ND would merge/evolve into a new center right party. But this strategy needs time for the reforms to work. This can be achieved if the DIMAR is not in the government but choses to selectively support laws and abstains from any votes of non-confidence.
So, DIMAR may remove their own ministers (some may refuse to obey) causing a reshuffle. Removing Mr Manitakis for example may speed up reforms in the public sector rather than retard them. Thus despite the apparent crisis on the outside, the breakup of the coalition may mean sunnier future.
Greek Bonds and the IMF
Greek bonds (post PSI) have traded lower on the Greek political crisis. On top of that there was an announcement by the IMF that unless the funding gap that was created by the reluctance of various National Central Banks to roll over some Greek bonds, the IMF would stop disbursements. This is an intra-troika affair and has very little to do with Greek developments. Adds more flavor to the German elections, as Merkel would never go back to the parliament to ask for more money for Greece.
Greek bonds on the other hand may present a good opportunity at close to 12% yield. Having said that, watch for the two bonds that are maturing on the 25th June (USD XS0372384064) and the 5th of July (CHF CH0021839524). They are both hold outs from the PSI and Greece needs to pay roughly 1.6billion. I am pretty sure that the recent T-bills would cover the amount so there is virtually no risk there.