It has been a very disturbing 24 hours for Greece.
It all started during yesterday’s surprisingly short, just one hour long Eurozone finmin meeting in Riga, where Yanis Varoufakis not only got the most “hostile” reception yet being called “a time-waster, gambler, and amateur“, but for the first time one minister openly said that maybe it was time governments prepared for the plan B of a Greek default. This happened after Jeroen Dijsselbloem slammed the door on Varoufakis’ proposal for early cash after partial reforms.
“A comprehensive and detailed list of reforms is needed,” Dijsselbloem told a news conference following a meeting in Riga. “A comprehensive deal is necessary before any disbursement can take place … We are all aware that time is running out.”
And so, what was once anathema, namely the official hints that a Grexit is being contemplated at the highest ranks, has now become almost commonplace, courtesy of the backstop provided by the ECB’s QE, which has lulled everyone into a sense of calm because somehow the hope has been kindled that the ECB (which is rapidly running out of government bonds to buy) can offset the realization that what was once an “unbreakable union” is suddenly not only breakable, but no longer a union. As such the trillions in deposit outflows that will sweep the periphery are somehow to be ignored because, well, “Draghi.”
This continued earlier today, when none other than German Finance Minister Schaeuble hinted that Berlin was preparing for a possible Greek default, drawing a parallel with the secrecy of German reunification plans in 1989.
As Reuters reports, at a briefing with reporters after a tense meeting of euro zone finance ministers on Greece on Friday, Schaeuble was asked if euro zone finance ministers were working on a “Plan B” in case negotiations on funding with cash-strapped Athens fail.
“You shouldn’t ask responsible politicians about alternatives,” Schaeuble answered, adding one only need to use one’s imagination to envisage what could happen.
He indicated that if he were to answer in the affirmative that ministers were working on a Plan B — what to do when Greece runs out of money and cannot pay back its debt — he could trigger panic.
To explain his position, he drew a parallel with the secrecy that was necessary during the initial stage of planning for German reunification in 1989.
“If back then a minister in charge — I was one of them — would have said beforehand, we have a plan for reunification, then the whole world probably would have said: ‘The Germans have gone completely crazy.'”
He is correct, but what is left unsaid is that the mere suggestion that Grexit no longer not being contemplated is a major escalation in Europe’s attempts to launch a bank run, which they have done an admirable job at so far, leading to more than half of total Greek deposits being funded by the ECB’s ELA as of this moment.
In other words, should the ECB boost the haircut on Greek bank collateral, and both a depositor bail-in and capital controls become inevitable.
Which incidentally, is what was also touched upon today, when the head of the Bundesbank and ECB governing council member Jens Weidmann said at a press conference in Riga, Latvia, that officials will discuss haircuts on collateral for emergency funding for Greek banks.
“As you know I have doubts about the provision of this emergency liquidity, because the banks are not doing all they can to improve their liquidity position, which I would expect from banks that avail of this assistance.”
“Instead, they are extending their loans — so-called T-bills — to the Greek state, which is each time a new credit decision. As these T-bills aren’t liquid, this means that in comparison with the alternatives, this is a deterioration of the liquidity situation which I find unacceptable.”
“The haircuts are designed according to the quality of the collateral — which in this case is mostly government debt securities — and that depends on the outlook for debt sustainability which is connected to a successful conclusion of the aid program.”
“From my point of view it is clear: time is running out, the solution cannot come from the central banks, we have a clearly limited task, a clearly limited mandate, and must abide by our rules.”
He, too, is of course correct, and yet his statement is also quite hypocritical, considering it is precisely the check-kiting scheme that Greek banks are engaged in and which the ECB “suddenly” finds objectionably, that has been the norm across Italy, Spain and Portugal for years: all countries whose reform efforst are laughable, and the only reason they haven’t imploded in the same pile of rubble as Greece is because the ECB has remained ss a buyer of last resort of their sovereign debt.
For now: because should Podemos or Beppe Grillo take chart in Spain or Italy, all bets are off, and the Greek “contagion”, which is really just the realization that there is no ECB bid into insolvent paper, will spread overnight.
Which brings us to the final reason why it has been a very nerve-wracking 24 hours for Greece.
In an interview with Bild, Mark Hauptmann, a lawmaker from German Chancellor Angela Merkel’s political party said that “if Greece stays in the euro, it will need not only a third bailout, but also a fourth, fifth or even more.”
He added that a Greek euro exit would be good in the long term because European contracts would regain their validity and Greece could regain its competitiveness.
He, too is correct.
Still, even with three “correct” statements laying out clearly why Greece should Grexit, somehow we doubt that anything will happen even as the posturing on all sides reaches a fever pitch, because while Europe may have Q€ as recourse to a Greek contagion, Greece now has a Putin threat as its final trump card. Because the second Greece is kicked out (or is forced to leave), the construction of the Turkish Stream begins, and with it the cementing of Russian energy dominance for the next decade, as well as the collapse of Ukraine (and the billions of western aid flowing into Kiev over the past year) into irrelevance.