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For an excellent update on the state of play in Greece, see the latest report from Der Spiegel, which suggests that Greece will finally reach some sort of climax at the EU Summit on October 18-19.The gist: Europe is done giving more concessions to Greece, and it’s up to PM Samaras to put together a real austerity package starting right now, rather than asking for more years, as had been suggested in public.
Samaras now has two to three weeks left to put together an austerity package worth about €14 billion ($17.5 billion) for the next two years. The Greek leader is promising to privatize state-owned businesses, cut government jobs and collect taxes more efficiently. But politicians in Berlin and Brussels doubt whether his new course will produce results quickly enough.
The troika of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) will spend the entire month of September auditing the books in Athens. Whether the report will be finished by the time the euro-zone finance ministers meet on Oct. 8 is already debatable. Meanwhile, staff at the European Council in Brussels are assuming that the summit of European Union leaders on Oct. 18-19 will be a showdown over Greece.
Meanwhile, Grexit prospects are the top of lots of folks minds these days.
Meanwhile, SocGen’s Michala Macussen says the Grexit quetion is the #1 client question these days.
Grexit? Greece to get more time, but not more money (at least for now). PM Samaras’ was given two clear messages from European leaders in a series of meetings that concluded in Paris on Saturday; (1) Greece must deliver on austerity, structural reform and privatisation and (2) no decision pending the next Troika review end- September. On an eventual extension on the Greek programme targets, the leaders were non-committal.
Over the weekend, however, German Finance Minister Schaueble reaffirmed his opposition to giving Greece more time and Mr. Dobrindt – a CSU member – voiced the opinion that Grexit would come next year. Mr. Laschet, a CDU member cautioned Saturday that Grexit could trigger instability in a NATO member state with Russia standing ready to help Greece and Chancellor Merkel Sunday warned German politicians to weigh their words “very carefully” in discussing Grexit.
For the euro area, we see several arguments against Grexit (1) European firewalls are still being raised (cf. below), (2) Grexit would present European taxpayers with an “immediate” bill on Greek default – so far there has been no outright loss for taxpayers, (3) Chancellor Merkel is facing an election in autumn 2013 and will no doubt be keen to avoid the disruption of Grexit ahead of this event
and (4) even if Grexit were to occur, it is very unlikely that Europe could escape giving more money to Greece given the potential humanitarian disaster that would result from such an event and the geopolitics.
One additional point against Grexit: The ECB has been spending a lot of time talking about the need to address redenomination risk, the idea that investors are scared to put money in Italy and Spain because of fears that they’ll revert to their old currencies. There’s no better way to undermine the effort to prevent this than to let one country revert to its old currency.
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