Tuesday 16 December 2014

Xmas Party Time the Greek way.

Everyone was expecting Greece to have a rocky time sometime in 2015 possibly 2016. Not so much because of the financial or fiscal situation but because of the quality of the Greek political system.
Let’s recap what has happened. Samaras the Greek PM was in the beginning an anti-Troika, anti-MOU, anti-everything leader. Then he realized that in order to achieve his lifelong ambition to become PM he has to pay his respects to Germany and Frau Merkel. He did so and was crowned PM of Greece in 2012. Then in 2014 he lost heavily in the European elections. His party came second and SYRIZA took pole position. Samaras then panicked big time. He slammed the brakes on any reform program and in a show of solidarity towards his European allies he announced unilaterally his intention to exit the MOU. In his panic he forgot that the European program was set to end on January 1st 2015 anyway, so instead he announced that the scapegoat-IMF would be kicked out of Greece. Markets panicked, the EU panicked, spreads went back up and the European leaders scrambled to save the day once more. Europe said ok but the IMF took a different view. In their eyes, the program was not finished. Greece had done nothing the past year on the structural reform side. Instead the government relied on the good tourist season and the fact that the recession is bottoming up (after 6 years) to present a rosy picture. The IMF hardened its stance not least because some of Samaras negotiators took the negotiations personally and talks allegedly moved into an advanced form of coprolalia.

Samaras now cornered tried to call IMF bluff. In his mind, if he cannot get the toy he asked from Santa Troika then their elves would have to risk negotiations with SYRIZA who’s leader is an atheist that went to Mount Athos to spend 15 meditation-minutes alone with a miraculous Mother of God icon (Called Axion Esti).

Samaras gambit was to bring forward the presidential election scheduled for February 2015. The president is elected by the parliament and his role is mainly ceremonial but because of bad constitutional reforms, if one is not elected then national elections are called. Samaras needs at least 180 out of 300 votes in order to survive. The million euro question is “does he have them or not?” Let’s find out.

Mechanics-Asynchronous voting complication
A bit on the mechanics of the election process. There would be two attempts on the 17th and the 23rd to elect a president with 200 votes. If they fail (almost certainly), then the third scheduled for Monday 29th needs only 180 votes. If they fail the third time then national elections would be called within a month, possibly on the 25th January or 1st of February.
The way the vote is going to take place is also important. It is an open vote, i.e. everyone declares his or her support. But it is not time synchronous. In other words, they call names, one by one according to region and alphabetically. So the 180th for example knows what the previous 179 have voted. So votes can change the last second as people see what is happening. A bit like ordering food in a restaurant after hearing what your friends have ordered, and changing your first choice (usually a bad move).

Neither 180 nor 120
So the magic number is 180 and everyone in Greece and all the hedge fund managers in the world engage in advanced numerology to foretell the result. It’s a good game to play with your kids if you want them to be experts in mental arithmetic for the 7+ exams.
a)      The coalition government claims 155 (ND 127+PASOK 28). Not enough to elect.
b)      The main opposition SYRIZA claims 71. Not enough to block election
c)      Communist party (KKE-yes there still is one) 14. Usually votes NO.
d)      Independent Greeks (ANEL-Party believes in chemtrail conspiracy. Hate to see their dependent beliefs) 12. They originally elected 20 but 8 of them saw the light in the sky and became truly independent by leaving the party. It is not clear how the remaining 12 would vote but being of independent mind they can split down the middle. Some say 3-4 would vote YES
e)       Democratic Left (DHMAR) commands 10 out of the original 17 they had elected. Anecdotal reports say that as many as 5 may be YES.
f)       Golden Dawn or the Nazi party commands 14. They had elected 16 but two left after the Nazi party they had joined was revealed to be Nazi. Eight are in prison (Another is still in prison but left the party and joined the Independents). Some say that push comes to shove Samaras would get one or two of them the last minute, possibly by promising that they would not follow the other eight.
g)      Independents. This is a large group made by the leftovers of the other parties. They are 24 and they come from all over the place apart from the communists (Comradeship still runs strong). Some count 16 as YES.

So doing your 7+, we have 155+3(ANEL)+5(DHMAR)+16(independents)=179. This is how close it is. One more from the independents or Golden Dawn and we have a president. One less and we have elections.
The truth is that it all depends on how the concoction of independents would vote. Some have come out as YES and some as NO but the many still keep their cards secret. After all last minute horse-trading increases the stakes and their negotiating value.

Market Reaction

As we all know, markets hate surprises (or love depending on your positions). Samaras, managed a big surprise. Markets reacted unfavorably to Greece as everyone is expecting high uncertainty. But is this bad for Europe as a whole? The truth is that we are not in 2010 when Greek debt was owned by French and German banks and any default would have caused massive problems. Neither are we faced with Greek contagion. In fact the PSI was done exactly for this reason. In the words of a German official “we look at ways to immunize Greece”. Nowadays, the majority of the Greek debt is in the official sector (EU government+IMF+ECB). So don’t expect financial turmoil because of this.
The perceived danger comes from the European politics. Anti-European sentiments are on the rise everywhere and they are manifest in different forms. In Spain we have Podemos, in France Le-Pen, in Germany Die Linke etc.

If Greece fails to elect a president and the national elections produce a SYRIZA government with all its anti-European policies this will be a bad sign for Europe. In this case, the oligarchs of the EU have two choices, either make an example of Greece by calling SYRIZA’s bluff or come to some form of an agreement.
The first scenario means disaster for Greece (Cyprus style or worse) and showing the Spanish-Podemos and others what awaits them. It is also good for Draghi, as he would find the perfect excuse to speed up the introduction of QE and silence the German objections. So, in a strange reversion Bad for Greece is Good for Europe.
The second scenario is messy too. SYRIZA would have to make huge U-turn and fast (speed is of essence). In the process they would lose support from the left flank that would need to be replenished somehow (from the center or the right) if they want to stay in power. Although this is the best scenario for Greece it has as many unknowns. How long this would take before the Eurogroup is fed up with having to spend long nights discussing with Mr Tsipras (leader of SYRIZA) and the radical left with Mr Tsipras.