amorgos34
CHIAGNI & FOTTI SRL
J.P. Morgan Logo
26 Jan 2015
Europe Economic Research
Why the region will take a tough line with Syriza-led Greece
With Syriza set to form a government backed by the Independent Greeks, the election appears to have generated a result which will encourage an assertive tone from the new Greek government as it begins negotiations with the rest of the region. We expect the rest of the region to be respectful of the fact that Greece has delivered a Syriza-led administration through a democratic process, and to indicate that it wants to work with Syriza to develop policies that are acceptable to both sides. But on the content of policy, we do not expect the region to bend very much, if at all. There are a number of reasons why:
- In the last 6 months or so of the Samaras-led administration, the Troika appeared unwilling to turn a blind eye to slippage on program commitments even though a primary budget surplus was being delivered. Given the Greek political situation, it may have been in the region’s interest to have been more accommodating to Greece at that stage. But the emphasis appeared to remain on ensuring the program was delivered in full before an early exit or changes to the debt burden were discussed. Given that backdrop, it is not clear why that attitude from the rest of the region will change now.
- The resistance to Syriza’s objective of a debt write-down is partly about what is acceptable in the broader politics of Northern creditor countries. But it is also the case that European Treaties do not offer any clear route through which face-value debt relief could be offered. The ESM has been appended to the Treaties on the grounds that countries still remain liable for their own debts and will be charged an appropriate interest on loans offered to them. To reduce the face value of Greek debt would, in all likelihood, require an extension of the Treaty, which means referenda in a lot of countries.
- The region is well aware of the fact that Syriza is blazing a trail for other non-mainstream parties elsewhere (Podemos is the most obvious example). To the extent that the region is seen to be accommodative to Syriza in a way which was denied to the Samaras administration, then it will inevitably encourage more support for these groups elsewhere.
- Although the region’s fiscal framework has been evolving, it is a mistake to think that it has been moving substantially toward the ideas Syriza appears to have in mind. The Commission has recently published guidance on how it will interpret the flexibility with the existing rules. But the extent to which countries who are subject to an excessive deficit can avail themselves of this flexibility is very constrained. And there remains an emphasis on structural reforms that aim to enhance competitiveness and expand the areas wherein markets can work unimpeded.
- While Syriza has been looking to build alliances with groups outside of Greece, those alliances have not brought it close to parties that are part of the mainstream of European policy-making, and through which it could seek to influence the debate from within the orthodoxy of the centre.
- Contagion effects from Greek concerns have been relatively modest thus far. And although the region still has a healthy respect for the turmoil that a Greek euro exit would create, our sense is that the region is significantly more confident in its ability to handle such an outturn than it was two years ago. And with Greece still dependent on the rest of the region for funding to allow it to stay current on its debts to the IMF and markets, and for funding for its banks, the rest of the region has its own tools to exert influence on the path of the discussions through time.
- Some media outlets have interpreted comments from Northern European officials that the region may be prepared to look at the interest rate and maturity of Greek debt as the beginnings of a process of concession to Greece. But, in our view, this offer has long been on the table conditional on the attainment of a set of policy goals set by the Troika. This should only be seen as a “concession” if the policy steps Greece needs to take to enable that discussion were to be meaningfully watered down.
We have already laid out or thinking on what we see as the most likely scenarios for how the interaction with Greece will play out through time (see D. Mackie, Greek election: judgments and process, 13 January 2015). A Troika that does not budge much from what has been a relatively hard-line position is something which runs through all the scenarios we consider likely.
Malcolm Barr
(44-20) 7134-8326
[email protected]
JPMorgan Chase Bank N.A, London Branch
26 Jan 2015
Europe Economic Research
Why the region will take a tough line with Syriza-led Greece
With Syriza set to form a government backed by the Independent Greeks, the election appears to have generated a result which will encourage an assertive tone from the new Greek government as it begins negotiations with the rest of the region. We expect the rest of the region to be respectful of the fact that Greece has delivered a Syriza-led administration through a democratic process, and to indicate that it wants to work with Syriza to develop policies that are acceptable to both sides. But on the content of policy, we do not expect the region to bend very much, if at all. There are a number of reasons why:
- In the last 6 months or so of the Samaras-led administration, the Troika appeared unwilling to turn a blind eye to slippage on program commitments even though a primary budget surplus was being delivered. Given the Greek political situation, it may have been in the region’s interest to have been more accommodating to Greece at that stage. But the emphasis appeared to remain on ensuring the program was delivered in full before an early exit or changes to the debt burden were discussed. Given that backdrop, it is not clear why that attitude from the rest of the region will change now.
- The resistance to Syriza’s objective of a debt write-down is partly about what is acceptable in the broader politics of Northern creditor countries. But it is also the case that European Treaties do not offer any clear route through which face-value debt relief could be offered. The ESM has been appended to the Treaties on the grounds that countries still remain liable for their own debts and will be charged an appropriate interest on loans offered to them. To reduce the face value of Greek debt would, in all likelihood, require an extension of the Treaty, which means referenda in a lot of countries.
- The region is well aware of the fact that Syriza is blazing a trail for other non-mainstream parties elsewhere (Podemos is the most obvious example). To the extent that the region is seen to be accommodative to Syriza in a way which was denied to the Samaras administration, then it will inevitably encourage more support for these groups elsewhere.
- Although the region’s fiscal framework has been evolving, it is a mistake to think that it has been moving substantially toward the ideas Syriza appears to have in mind. The Commission has recently published guidance on how it will interpret the flexibility with the existing rules. But the extent to which countries who are subject to an excessive deficit can avail themselves of this flexibility is very constrained. And there remains an emphasis on structural reforms that aim to enhance competitiveness and expand the areas wherein markets can work unimpeded.
- While Syriza has been looking to build alliances with groups outside of Greece, those alliances have not brought it close to parties that are part of the mainstream of European policy-making, and through which it could seek to influence the debate from within the orthodoxy of the centre.
- Contagion effects from Greek concerns have been relatively modest thus far. And although the region still has a healthy respect for the turmoil that a Greek euro exit would create, our sense is that the region is significantly more confident in its ability to handle such an outturn than it was two years ago. And with Greece still dependent on the rest of the region for funding to allow it to stay current on its debts to the IMF and markets, and for funding for its banks, the rest of the region has its own tools to exert influence on the path of the discussions through time.
- Some media outlets have interpreted comments from Northern European officials that the region may be prepared to look at the interest rate and maturity of Greek debt as the beginnings of a process of concession to Greece. But, in our view, this offer has long been on the table conditional on the attainment of a set of policy goals set by the Troika. This should only be seen as a “concession” if the policy steps Greece needs to take to enable that discussion were to be meaningfully watered down.
We have already laid out or thinking on what we see as the most likely scenarios for how the interaction with Greece will play out through time (see D. Mackie, Greek election: judgments and process, 13 January 2015). A Troika that does not budge much from what has been a relatively hard-line position is something which runs through all the scenarios we consider likely.
Malcolm Barr
(44-20) 7134-8326
[email protected]
JPMorgan Chase Bank N.A, London Branch
Inoltre il fatto che vengano ormai richiamate anche emissioni non step up, o che comunque hanno una cedola post call irrisoria, rafforza la mia convinzione che lentamente ci stiamo avviando verso la totale sostituzione degli strumenti legacy, almeno da parte degli istituti in buono stato di salute.
