As Greece edges precipitously toward default – barring a last-minute compromise with cash running out – it looks like the day of reckoning is closing in, world press reports say.
Debt Costs Soar, Greece Faces “Lehman Moment”
CNBC – Holly Ellyatt
As Greece’s stock market plunges and borrowing costs soar, analysts warned the country could be facing its “Lehman moment” as it faces bankruptcy and more financial chaos.
Greek bank stocks fell dramatically on Tuesday and its borrowing costs rose sharply following news that European Central Bank (ECB) staff were mulling contingency plans for both an “orderly” and “disorderly” default by Greece, sources told CNBC.
A default could lead to Greece leaving the euro zone—something that closely-watched investor Mark Mobius said could herald the “beginning of the end” of the single currency bloc.
“If there was an exit of Greece from the euro, that would be an amazing event for Europe. It would mean the beginning of the end and that would not be a happy picture,” Mobius, executive chairman at Templeton Emerging Markets Group, told CNBC.
Why Greece’s Real Deadline is July 20
Bloomberg Business – David Powell
Greece probably has until late July to come to an agreement with its creditors. Possible delays in payments to the International Monetary Fund shouldn’t prompt the European Central Bank to shut off vital liquidity to Greek banks.
By contrast, a default on marketable debt, specifically the failure of the Greek government to pay 3.5 billion euros due to the ECB on July 20, would probably force the central bank’s hand. The Greek government and its creditors are still likely to reach a deal on a list of reforms before that crucial date.
Greek banks are relying on liquidity from the ECB to avoid financial collapse. That support is currently provided by the Emergency Liquidity Assistance scheme from the monetary authorities in Frankfurt.
In the event of a sovereign default, the banks, which are large holders of Greek debt, would probably be ruled insolvent because the value of the assets on their balance sheets would fall sharply.
Under the rules of the ELA, the ECB would be unlikely to be able to continue providing liquidity to lenders in the beleaguered country — users of the scheme must be solvent.
Rolling over Treasury bills of about 11 billion euros between now and July 20 is unlikely to create a problem, as long as ECB liquidity remains available. The debt management office will probably be able to complete those operations because Greek banks have continued to be loyal buyers of those assets.
A more pressing concern is a payment to the IMF. Greece must pay about 774 million euros on May 12.
Still, a failure to make that payment would be unlikely to cause the ECB to cut off liquidity to the country’s banks.
Since the ability to pay depends on the ability to reach an agreement on reforms, that might be considered a matter of liquidity rather than solvency, allowing the ECB to keep funding Greek banks.
In addition, the IMF wouldn’t even have to make a public announcement about the country being in arrears until three months have passed since the missed payment, though the country is immediately shut off from the Fund’s resources.
Could the ECB Push Greece Out of the Eurozone?
Forbes – Tim Worstall
The Greek financial markets have tumbled again today as news leaks that the European Central Bank is thinking of tightening the Greek banks’ access to liquidity. The importance of this is that while it could be just a small tightening of conditions, one that could be justified purely on prudential grounds, it’s also the way that Greece is most likely to have to leave the euro.
Simply because the banks fall over, they’ve got to be recapitalised and the only way to do that would be outside the euro. So, we’re not really sure what is going on as the background to this story, we only know the what of what is being discussed, not the why:
Bloomberg reported the ECB may soon up the haircuts banks take on collateral when borrowing from the Bank of Greece, which has been providing emergency lending.
The proposal is a new sign that the ECB is tightening the reigns on the country, as Greece is locked in discussions with its creditors over aid payments this week in Riga.
That’s one way of looking at it, that it’s the ECB signalling to the Greek government. Do as we wish or else. The or else being, well, you’ve got a nice banking system here, be a shame if anything happened to it, wouldn’t it? There are other possible interpretations:
ECB staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece, the people said, asking not to be named as the matter is private.
While adjusting these so-called haircuts hasn’t been formally discussed by the Governing Council, it may be considered if Greece’s leaders fail to quickly convince euro-area finance ministers they can reform their economy and secure bailout funds, one of the people said. Greek bank stocks slid.
It could just be sensible prudential management.
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