ECB and Inflation

[Zanza]

http://www.economist.com/news/europe/21647691-greece-looks-china-and-russia-help-cannot-get-around-its-euro-zone-partners-running-out

Greece's cash crunch
Running out of room

Greece looks to China and Russia for help but cannot get around its euro zone partners
Apr 1st 2015 | ATHENS | Europe

ALEXIS TSIPRAS, the Greek prime minister, and his radical Syriza party are beginning to feel the heat. Two months of bluster by Greece's first left-wing government have failed to produce the results it wanted. Those include an injection of fresh cash from the country's current €172 billion ($185 billion) bail-out programme, and a new deal with the European Union and the International Monetary Fund (IMF) that would allow Athens, not its creditors, to decide on future economic reforms.

Greece's eurozone partners are still waiting for Athens to come up with details, promised two weeks ago, on the country's deteriorating public finances. Mr Tsipras has promised Greek voters that Syriza has banned the hated "troika" of bail-out monitors (from the European Commission, the IMF and the European Central Bank) from Athens. To protect that political narrative, a team of mid-level officials from the three institutions sits ensconced in a four-star Athens hotel, gathering information by exchanging e-mails with their finance ministry counterparts. The ministry itself is strictly off-limits. "This system works quite well," claims Dimitris Mardas, the budget minister. The visitors disagree, complaining about delays and inaccurate replies that could be avoided if they were allowed to meet Greek colleagues face-to-face.

Meanwhile, a three-member Greek team of senior economists in Brussels does the actual negotiating with the troika. Not much progress has been made. European officials criticised Greek revenue projections, for example, as over-optimistic. Yet officials in Athens claim that all is well and that a deal could be wrapped up as early as next week, opening the way for a cash handout of about €2 billion later this month.

Greece is getting desperately short of cash. It was a stretch last month to pay pensions and civil servants' wages after repaying a €1.4 billion IMF loan instalment. Another €450m must be paid to the IMF on April 9th. Foreign investors must be repaid about €700m when a €1.4 billion treasury bill expires on April 14th. If both payments are made there will probably not be enough left in the government's coffers to pay wages and pensions in April, according to officials at the central bank.

Mr Tsipras is hunting for new potential sources of financial support. One is China, which invested about €100m in two recent issues of T-bills as a token of goodwill. That gesture followed the Syriza government's decision to revive the privatisation of the port of Piraeus, which China's Cosco shipping group is keen to buy. Giannis Dragasakis, the deputy premier, returned from a visit to Beijing last week with a promise of more purchases of Greek T-bills by Chinese state financial institutions.

Another option is Russia. Mr Tsipras has brought forward to next week a visit to Moscow that had been set for May. In an interview with Tass, the Russian news agency, he said that Greece opposes EU sanctions against Russia, which badly hit Greek fruit exporters. He added that Greece wants to participate in Russia's project of building a second gas pipeline across the Black Sea to Turkey. Russia's foreign minister, Sergey Lavrov, told his visiting Greek counterpart Nikos Kotzias in February that a Greek request for a loan would be "considered".

Yet if Mr Tsipras did pull off a deal in Moscow, Greece's European creditors would push all the harder to protect their influence. They would be more likely to keep their bail-out funds out of his reach. Greece may consider Russia an option, but it is one they cannot turn to without alienating the countries they ultimately need to placate: their euro zone partners.

http://www.telegraph.co.uk/finance/economics/11509302/Greece-threatens-international-default-without-fresh-bail-out-cash.html

The Greek government has threatened to default on its loans to the International Monetary Fund, as Athens continued its battle to convince creditors for a fresh injection of bail-out cash.
Greece's interior minister told Germany's Spiegel magazine, his country would not respect a looming €450m loan repayment to the fund on April 9, without a release of much-needed bail-out funds.
"If no money is flowing on April 9, we will first determine the salaries and pensions paid here in Greece and then ask our partners abroad to achieve consensus that we will not pay €450 million to the IMF on time," said Nikos Voutzis.
The cash-strapped government has struggled to keep up with its wage and pensions obligations having agreed a bail-out extension on February 20.
Athens insists it has enough money to last it until the middle of April, but a final agreement on any bail-out deal is unlikely to be secured before the end of the month.
A Greek government spokesperson later denied the reports of a deliberate default, saying the country still hoped for a "positive outcome" to its debt negotiations.

[Admiral Yi]

"If no money is flowing on April 9, we will first determine the salaries and pensions paid here in Greece and then ask our partners abroad to achieve consensus that we will not pay €450 million to the IMF on time," said Nikos Voutzis."

  These guys are a bad joke.

[The Minsky Moment]

EU numbers on deflation and jobs a little better for February.

[Tonitrus]

All rioters in free countries should fucking hang. Stick to legal means, faggots.

Free countries are too effective at building bureaucracies that specialize in blocking legal means. 

[Zanza]

A committee of the Greek parliament that was set up to investigate the causes of the debt crisis didn't yet come to a conclusion.  But they did find that Germany owes them 278.7 billion Euro as reparations for WW2. I wonder how you come up with a number like that. I guess the decimal number is there to suggest objectivity.

[Admiral Yi]

Surely the IMF must owe them some reparations too?

[Ed Anger]

Damn euro is weakening again. Fuckers are ruining my house value in my overseas territories. 

[Sheilbh]

A committee of the Greek parliament that was set up to investigate the causes of the debt crisis didn't yet come to a conclusion.  But they did find that Germany owes them 278.7 billion Euro as reparations for WW2. I wonder how you come up with a number like that. I guess the decimal number is there to suggest objectivity.

That figure was provided by the Deputy Finance Minister and is based on a Finance Ministry Commission (set up by the previous government) that's reported recently. It was to the Parliamentary Commission into reparations and re-appropriation of historical artefacts.

It's nice to see a Greek government moan about something other than the fucking Elgin Marbles

As I've said I think on the forced loan at least I think they've got a case - but that's a small element of the total.

Damn euro is weakening again. Fuckers are ruining my house value in my overseas territories. 

I bought my holiday Euros last week and have been watching it every day since getting better and better

Actually going to Greece for the first time, which'll be nice.

[MadImmortalMan]

Tumbling Interest Rates in Europe Leaves Some Banks Owing Money on Loans to Borrowers
Subzero rates have put some lenders in an inconceivable position


Residential properties in Lisbon. As Euribor, an interest-rate benchmark commonly used in the eurozone for setting mortgage rates, heads into negative territory, banks face the possibility of having to pay borrowers. Photo: MARIO PROENCA/Bloomberg News



By Patricia Kowsmann in Lisbon and
Jeannette Neumann in Madrid
Updated April 13, 2015 7:13 p.m. ET
71 COMMENTS

Tumbling interest rates in Europe have put some banks in an inconceivable position: owing money on loans to borrowers.

At least one Spanish bank, Bankinter SA, the country's seventh-largest lender by market value, has been paying some customers interest on mortgages by deducting that amount from the principal the borrower owes.

The problem is just one of many challenges caused by interest rates falling below zero, known as a negative interest rate. All over Europe, banks are being compelled to rebuild computer programs, update legal documents and redo spreadsheets to account for negative rates.

Interest rates have been falling sharply, in some cases into negative territory, since the European Central Bank last year introduced measures meant to spur the economy in the eurozone, including cutting its own deposit rate. The ECB in March also launched a bond-buying program, driving down yields on eurozone debt in hopes of fostering lending.



In countries such as Spain, Portugal and Italy, the base interest rate used for many loans, especially mortgages, is the euro interbank offered rate, or Euribor. The rate is based on how much it costs European banks to borrow from each other.

Banks set interest rates on many loans as a small percentage above or below a benchmark such as Euribor. As rates have declined, sometimes to below zero, some banks have faced the paradox of paying interest to those who have borrowed money from them.

Lenders, hoping to avoid the expense of having to pay borrowers, are turning to central banks for guidance. But what they are hearing is less than comforting.

Portugal's central bank recently ruled that banks would have to pay interest on existing loans if Euribor plus any additional spread falls below zero. The central bank, however, said lenders are free to take "precautionary measures" in future contracts. More than 90% of the 2.3 million mortgages outstanding in Portugal have variable rates linked to Euribor.

In Spain, a spokesman for the central bank said it is studying the issue.

The vast majority of Spanish home mortgages have rates that rise and fall tied to 12-month Euribor, said Irene Peña, an economist with Spain's mortgage association. That rate stands at 0.187%.

Bankers in Italy said they are awaiting guidance from their local banking association, because loan contracts don't include any clause on what happens if benchmark rates go below zero. About half of the mortgages outstanding in Italy have variable rates, most of them linked to Euribor, according to mortgage broker Mutuionline. Some other countries, such as Germany, often use fixed rates.

In Spain, Bankinter has been forced to deduct some clients' mortgage principal payments because an interest-rate benchmark tied to Switzerland's currency has dipped into negative territory.

In January, the Swiss National Bank ended a 3½-year policy of capping the strength of the franc against the euro, sending the Swiss currency soaring against the common currency and U.S. dollar, and cut bank deposit rates into negative territory. The move to end the cap on the franc was designed to relieve pressure on Swiss exporters, many of which are reliant on the eurozone for sales.

During Spain's home-building frenzy in the middle of the last decade, Bankinter issued mortgages tied to the one-month Swiss franc iteration of the London interbank offered rate, or Libor. At the time, clients were attracted to the offer because Swiss franc Libor was lower than Euribor, the traditional reference for Spanish mortgages.

"I'm going to frame my bank statement, which shows that Bankinter is paying me interest on my mortgage," said a customer who lives in Madrid. "That's financial history."

The client in 2006 took out a roughly €500,000 ($530,000) home mortgage loan based on Swiss franc Libor, plus 0.5 percentage point. Since then, Swiss franc Libor has fallen far enough into negative territory to make his mortgage rate negative.

It is hardly a windfall for this customer, however, because, while Swiss franc Libor has fallen, the Swiss franc itself has risen in value against the euro. That means the value in euros of the total mortgage debt he owes Bankinter has also increased, because that debt is denominated in Swiss francs.

Bankinter has few such mortgages tied to a negative Libor rate, a spokesman said, declining to provide a figure.

An executive at another Spanish bank said the lender in recent months has started to put in place an interest-rate floor on thousands of short-term business loans that are tied to short-term variations of Euribor. Two-month Euribor, is at minus 0.004%. For new loans, the bank is increasing the cushion it charges customers above Euribor.

Hundreds of thousands of additional loans would be affected if medium-term Euribor rates enter negative territory, the executive said. The six-month rate is currently at 0.078%.

Meanwhile, some borrowers in Spain haven't found relief.

A Madrid judge in November ruled against a client of Banco Santander SA who claimed that Spain's largest bank inappropriately established a floor on his mortgage in 2013 and therefore owed him money. The plaintiff had taken out a mortgage in 2005 that offered a fixed rate of 2% in the first year and Euribor minus 1.1 percentage points thereafter. The plaintiff said he was now owed money from the bank.

To buttress his argument that a bank shouldn't have to pay a borrower for a loan, the judge quoted from a June 2014 statement from the Bank of Spain that "a payment in favor of the client in these situations would never apply, but rather the application of an interest rate of zero by the entity." The Bank of Spain spokesman said the statement cited in the case was issued by the central bank's customer-complaints service, which typically responds to particular cases. The Bank of Spain hasn't issued a systemwide decision on how banks should treat negative interest rates, he said.

In Portugal, interest rates on most mortgages are linked to a monthly average of three- and six-month Euribor. Both have been steadily sinking and are hovering just above zero.

João Coelho da Silva, a 53-year-old real-estate agent in Lisbon, has seen his mortgage payments fall from about €450 a month when his loan began in 2008 to €235 now, thanks to a falling three-month Euribor. "With the economy in such a bad state, these monthly savings are more than welcomed," Mr. da Silva said.

Time again for an Iberi-bubble.

[Zanza]

Looks like the latest round of talks between the Eurozone and Greece have failed and there won't be a deal on further financial aid during the EU summit on April 24th. That leaves Greece in a precarious situation where they could face default in the next weeks. Let's see.

In general the risk of contagion is no longer seen with a default, but rather with giving in to the demands and brinkmanship of the Greek government. So there is a certain willingness not to bail out Greece in the last minute this time.

[Monoriu]

I don't think it is just about Greece anymore.  If Greek voters elect a radical left party and then are allowed off the hook, the message to voters in other countries is to do the same.  If Spain, Italy, Portugal and others all want their debt to just magically disappear, that could be a real problem. 

[jimmy olsen]

A committee of the Greek parliament that was set up to investigate the causes of the debt crisis didn't yet come to a conclusion.  But they did find that Germany owes them 278.7 billion Euro as reparations for WW2. I wonder how you come up with a number like that. I guess the decimal number is there to suggest objectivity.

Isn't their claim supposedly based on a loan the Nazis forced them to give that was never repaid, and this is the result of 70 years of interest or something like that?

[Zanza]

@Tim: Only about 10 billion. The rest is reparations for loss of life and property.
@Mono: Exactly.

[The Minsky Moment]

I don't think it is just about Greece anymore.  If Greek voters elect a radical left party and then are allowed off the hook

I don't get this narrative, how is Greece being "allowed off the hook"?

If Greece were a normal country their present problems while severe would not provoke an immediate crisis because they could just issue debt.  They are running a primary surplus, no question it could be done in theory.

It can't be done in practice though because Greece is not a normal country, it is a Eurozone country.  They can't sell their own domestic debt, because the ECB won't let them -  the ECB forbid Greek bank members of the EZ to use Greek debt as collateral, and it has instructed Greek banks not to increase their stock of Greek government bonds.  I.e. the ECB is artificially cutting off any financial options for the Greek government other than getting money from EU creditors or the IMF. 

The sryiza government is a train wreck, no doubt - it is amateurish and full of suspiciously Marxist ideologues.  But the main problem here is an always has been a boneheaded EU policy that has discredited all other political forces and reinforced the crisis.  The current policy is the most idiotic of all - it seeks to force the country into a settlement that settles nothing and keeps the underlying problem- an unmanageable stock of debt - intact and festering.

At this point, hard to see a better option for Greece than outright default.

[Admiral Yi]

Their bonds were trading at a yield of 40% before the bailout Joan.  If they tried to solve their problems by issuing new debt the interest bill would kill them.