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.
PSI+
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
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.
