discipline
Guest
Il punto di JPM
The current EU/IMF programme for Greece assumes that the sovereign will be able to reaccess capital markets when the official support starts to decline next year. However, it has been evident for a while that renewed market access is very unlikely to happen, so that Greece would need another official programme. We were expecting the region to make a decision about the terms of Greece’s access to the EFSF towards the end of this year. Developments over the weekend suggest that a decision could come much sooner, possibly in the coming few weeks.
Despite protestations to the contrary on Friday evening, there was a meeting of Euro area policymakers to discuss further measures to deal with the Greek debt crisis. Although there has not been any official statement, the impression in the press is that intense discussions are underway at the moment, and that something will be decided soon.
A reasonable question to ask is why a decision needs to be made now, given that renewed market access is not needed until the spring of next year. To some extent policymakers are concerned about the sharp rise in yields in the government bond market. However, with the Greek sovereign in the EU/IMF liquidity hospital, and with the ECB offering unlimited funding to Greek banks, one might wonder why policymakers should be influenced by secondary market prices. Contagion is normally the answer given, but with Ireland and Portugal now in the liquidity hospital that argument also loses much of its force. More worrying would be a renegotiation of the Greek package, including access to the EFSF through 2013, driven by a Greek inability to meet the current programme objectives. Indeed, it appears to us that the question of market access next year is being mixed up with the issue of meeting the programme objectives this year. This is no doubt adding some confusion to the current situation.
Also on the table appears to be a debate around the terms and conditions of official liquidity support, with Greece apparently wanting further declines in borrowing costs and further extensions in maturity. As we have argued on many occasions, the terms and conditions of the liquidity support are a critical driver of debt sustainability, but it is also important to stress that they are not a substitute for Greece generating a primary surplus.
At the moment, the precise motivation for a near term decision is unclear, but the nature of the key decision is abundantly clear. The region needs to decide whether Greece will access the EFSF to cover its gross funding needs in 2012 and 2013, or whether access will only be given to cover its fiscal deficit which would mean that the debt amortising in the next two years would have its maturity extended. Decisions about the programme objectives and the terms and conditions of official support are also important, but the decision about whether or not to restructure the debt is probably paramount.
There is clearly a political argument in favour of extending the maturity of the existing debt, both to limit the financial exposure of the rest of the region to Greece and to incentivize the Greek government to stick to the current objective of generating a sizeable primary surplus by 2014. Throughout this crisis, the region has sought to balance the use of carrot and stick. The carrot is clearly the liquidity support; the stick is the implied threat of default if Greece fails to meet the program objectives. The latter is now embedded in the structure of the ESM, due to take over from the EFSF in 2013. However, the threat of default is only a stick if it is more painful for the debtor sovereign than it is for its creditors. It could be argued that as the official liabilities rise relative to privately held market debt, the effectiveness of this stick diminishes. Thus, the motivation for a maturity extension in the near term is not simply to limit the financial exposure in the core of the region, but also to keep the pressure on the Greek government to continue to meet the medium-term objectives of a primary surplus and broad-based structural improvement.
But, there is an economic argument against extending the maturity of the existing debt, due to the likely disruption caused to Greece, the rest of the periphery, and possibly even the core countries. The magnitude of the economic disruption depends on how the behaviour of the sovereigns is influenced (do they work even harder to avoid a more extensive restructuring later), how financial markets behave (do they price in an even more extensive restructuring later), how banks are impacted (due to the erosion of their capital positions) and how wholesale capital markets are affected (due to an increase in counterparty risk and uncertainty). The ECB and the European Commission both hold the view that these disruptions would be large and would outweigh any potential political gains.
Our central view remains that Greece will access the EFSF to cover its gross funding needs through 2013. This would represent an additional €65bn of official support relative to the situation of maturity extension. As important, if gross funding needs continue to be met from official support, Greece’s official exposure to the rest of the region will exceed the amount of market debt outstanding by the end of 2013. But, relative to this central view, the risk of a maturity extension has risen, as we explain in our research note in this week’s Global Data Watch “Rising risk of a Greek debt restructuring this year”.
If our central view is right it will beg some difficult questions. To the extent that a near term decision is being motivated by Greece struggling to meet the conditionality of the current programme, it raises the issue of what that conditionality means. This has important implications for the incentives on Ireland and Portugal to meet their programme objectives. Looking further ahead, a decision not to extend the maturity of Greek debt raises the issue of the credibility of the structure of the ESM that has been agreed. There will always be a financial stability argument against debt restructuring in the Euro area. The recent agreement on the ESM suggests that the region will tolerate this disruption in order to ensure that fiscal discipline is maintained. The ECB and EC’s opposition to debt restructuring raises the question of whether policymakers in the region will ever tolerate a debt restructuring even for a sovereign that is clearly insolvent.
The alternative to fiscal discipline or debt restructuring would clearly be fiscal transfers. For some in the region this would not necessarily be a bad thing. Some continue to look wistfully at the US where there are much larger fiscal transfers across states than there are in the Euro area across countries. But, it is important to recognise that the quid pro quo for fiscal transfers in the US is the constitutionally mandated balanced budget rules at the state level. The danger for the Euro area, if the threat of default and debt restructuring in the ESM turns out to be an empty one, is that the region will get fiscal transfers de facto without fiscal discipline de jure.
JPMorgan Chase Bank N.A, London Branch
The current EU/IMF programme for Greece assumes that the sovereign will be able to reaccess capital markets when the official support starts to decline next year. However, it has been evident for a while that renewed market access is very unlikely to happen, so that Greece would need another official programme. We were expecting the region to make a decision about the terms of Greece’s access to the EFSF towards the end of this year. Developments over the weekend suggest that a decision could come much sooner, possibly in the coming few weeks.
Despite protestations to the contrary on Friday evening, there was a meeting of Euro area policymakers to discuss further measures to deal with the Greek debt crisis. Although there has not been any official statement, the impression in the press is that intense discussions are underway at the moment, and that something will be decided soon.
A reasonable question to ask is why a decision needs to be made now, given that renewed market access is not needed until the spring of next year. To some extent policymakers are concerned about the sharp rise in yields in the government bond market. However, with the Greek sovereign in the EU/IMF liquidity hospital, and with the ECB offering unlimited funding to Greek banks, one might wonder why policymakers should be influenced by secondary market prices. Contagion is normally the answer given, but with Ireland and Portugal now in the liquidity hospital that argument also loses much of its force. More worrying would be a renegotiation of the Greek package, including access to the EFSF through 2013, driven by a Greek inability to meet the current programme objectives. Indeed, it appears to us that the question of market access next year is being mixed up with the issue of meeting the programme objectives this year. This is no doubt adding some confusion to the current situation.
Also on the table appears to be a debate around the terms and conditions of official liquidity support, with Greece apparently wanting further declines in borrowing costs and further extensions in maturity. As we have argued on many occasions, the terms and conditions of the liquidity support are a critical driver of debt sustainability, but it is also important to stress that they are not a substitute for Greece generating a primary surplus.
At the moment, the precise motivation for a near term decision is unclear, but the nature of the key decision is abundantly clear. The region needs to decide whether Greece will access the EFSF to cover its gross funding needs in 2012 and 2013, or whether access will only be given to cover its fiscal deficit which would mean that the debt amortising in the next two years would have its maturity extended. Decisions about the programme objectives and the terms and conditions of official support are also important, but the decision about whether or not to restructure the debt is probably paramount.
There is clearly a political argument in favour of extending the maturity of the existing debt, both to limit the financial exposure of the rest of the region to Greece and to incentivize the Greek government to stick to the current objective of generating a sizeable primary surplus by 2014. Throughout this crisis, the region has sought to balance the use of carrot and stick. The carrot is clearly the liquidity support; the stick is the implied threat of default if Greece fails to meet the program objectives. The latter is now embedded in the structure of the ESM, due to take over from the EFSF in 2013. However, the threat of default is only a stick if it is more painful for the debtor sovereign than it is for its creditors. It could be argued that as the official liabilities rise relative to privately held market debt, the effectiveness of this stick diminishes. Thus, the motivation for a maturity extension in the near term is not simply to limit the financial exposure in the core of the region, but also to keep the pressure on the Greek government to continue to meet the medium-term objectives of a primary surplus and broad-based structural improvement.
But, there is an economic argument against extending the maturity of the existing debt, due to the likely disruption caused to Greece, the rest of the periphery, and possibly even the core countries. The magnitude of the economic disruption depends on how the behaviour of the sovereigns is influenced (do they work even harder to avoid a more extensive restructuring later), how financial markets behave (do they price in an even more extensive restructuring later), how banks are impacted (due to the erosion of their capital positions) and how wholesale capital markets are affected (due to an increase in counterparty risk and uncertainty). The ECB and the European Commission both hold the view that these disruptions would be large and would outweigh any potential political gains.
Our central view remains that Greece will access the EFSF to cover its gross funding needs through 2013. This would represent an additional €65bn of official support relative to the situation of maturity extension. As important, if gross funding needs continue to be met from official support, Greece’s official exposure to the rest of the region will exceed the amount of market debt outstanding by the end of 2013. But, relative to this central view, the risk of a maturity extension has risen, as we explain in our research note in this week’s Global Data Watch “Rising risk of a Greek debt restructuring this year”.
If our central view is right it will beg some difficult questions. To the extent that a near term decision is being motivated by Greece struggling to meet the conditionality of the current programme, it raises the issue of what that conditionality means. This has important implications for the incentives on Ireland and Portugal to meet their programme objectives. Looking further ahead, a decision not to extend the maturity of Greek debt raises the issue of the credibility of the structure of the ESM that has been agreed. There will always be a financial stability argument against debt restructuring in the Euro area. The recent agreement on the ESM suggests that the region will tolerate this disruption in order to ensure that fiscal discipline is maintained. The ECB and EC’s opposition to debt restructuring raises the question of whether policymakers in the region will ever tolerate a debt restructuring even for a sovereign that is clearly insolvent.
The alternative to fiscal discipline or debt restructuring would clearly be fiscal transfers. For some in the region this would not necessarily be a bad thing. Some continue to look wistfully at the US where there are much larger fiscal transfers across states than there are in the Euro area across countries. But, it is important to recognise that the quid pro quo for fiscal transfers in the US is the constitutionally mandated balanced budget rules at the state level. The danger for the Euro area, if the threat of default and debt restructuring in the ESM turns out to be an empty one, is that the region will get fiscal transfers de facto without fiscal discipline de jure.
JPMorgan Chase Bank N.A, London Branch
Ultima modifica di un moderatore:
Lunedì quando tutto era bloccato provai a chiamare le 3 filiali con cui lavoravo della stessa(grossa) banca per sapere cosa fosse tutta quella confusione; risposero che non sapevano e mi avrebbero ricontattato....
oggi che ho risolto positivamente la questione (per fortuna) devono ancora chiamarmi.non riesco a capire se vogliono creare rapporti col cliente o rovinarli(forse vanno meglio ad acquisire banche indebitate e quasi in default dai paesi dell'est).a volte non sanno fare un semplice calcolo di rendimento di un titolo.tutto quello che succede alla gente comune spero capiti a loro e che qualche posto in poltrona si ritrovi vagante
p.s a volte i "mercati" di trattazione di strumenti finanziari ,duo polio (ETLX E extramot) "aiutano" ad acquistare tra l'altro con prezzi den/lett indecenti
