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Monday, June 15, 2015 12:36 PM

Time Pressure Thesis; Let's Play Ball; Greece 2-Year Bond Yield Hits 28.5%

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On Sunday, Greece walked out of talks with the Troika after 45 minutes. Does the rest of Europe want a deal more than Greece?

Regardless, Both Sides in Greek Bailout Crisis Harden Positions.

Both sides in the deadlocked Greek bailout crisis hardened their positions on Monday, a day after the collapse of the latest talks to broker an agreement between the cash-strapped government in Athens and its international creditors.

With two weeks to strike a deal before Greece’s next loan repayment is due, Alexis Tsipras, the Greek prime minister, accused creditors of “political motives” behind the latest rejection of his proposals and claimed to be “shouldering . . . the hopes of the people of Europe”.

Mr Tsipras says further pension cuts are a “red line” that cannot be crossed after successive bailout reductions that have reduced the average pension by more than 40 per cent.

“The Greek government has been negotiating with a specific plan and documented proposals. We will wait patiently until the institutions adhere to realism,” the premier added.

In a rhetorical flourish, Mr Tsipras also said: “We are not simply shouldering a history laden with struggles. We are shouldering the dignity of our people, as well as the hopes of the people of Europe. We cannot ignore this responsibility. This is not a matter of ideological stubbornness. This is about democracy.”

Mario Draghi, president of the ECB, called on Athens to rethink it position urgently and offer a new proposal to reopen negotiations. “While all actors will now need to go the extra mile, the ball lies squarely in the camp of the Greek government to take the next steps,” he said.

François Hollande, the French president, said on Monday that “turbulent” times were looming “if we don’t reach an agreement”. “Let us not waste time and let’s restart the negotiations as soon as possible,” he said on the sidelines of the Paris air show.

Without the endorsement of the bailout monitors the chances of an amicable agreement on Thursday are remote, raising the prospect that eurozone negotiators may resort to the “take it or leave it” strategy used on Cyprus at a eurogroup meeting two years ago.
Let's Play Ball

The appeal by Hollande and the ECB does indeed suggest the creditors want a deal much more than Greece does.

And if so, it appears my thesis about Greece purposely drawing this process out for months without really wanting a deal is the correct one.

Who has the Ball?

The ball is actually in the hands of those who most want a deal. For months, Germany has stated the eurozone is prepared for a default and Greece is bluffing.

If so, why the massive angst? Who's bluffing whom?

Who's the Novice Game Player?

Flashback February 3, 2015: Bloomberg writer Leonid Bershidsky commented "By the time the EU is done with the Syriza novices, Greece's debt may be a little lower, but the government's radicalism will be a tattered banner."

On the same day Hans-Peter Friedrich, a deputy leader of the Merkel’s Christian Democratic  caucus, said “Greece, not Germany, is under time pressure”.

German finance minister Wolfgang Schäuble said "Europe had already pushed its generosity to Greece to the absolute limit. We need solidarity in Europe, and besides we cannot be blackmailed."

Time Pressure Thesis

My Reply to the three of them, in Germany's "Time Pressure" Thesis; Noose Tightens on Europe was as follows:

Bershidsky is another in a long line of persons who do not understand simple math. Time will tell who is waving the "tattered banner" over what can and cannot be paid back. My bet, one way or another, is on the alleged "novices".

Reader Mailbag

Reader "AC" pinged me today with these thoughts.
Hello Mish

Indeed I think you are right. Tsipras voluntarily made the talks go on and on. If you think about it, that was in its best interest: Greeks could withdraw money and prepare, he could study other plans (Russia?), and he could study the behavior of his counterpart.

The last point is key in understanding who has the loaded gun. My feeling is that EU/ECB want a deal (their deal) and Tsipras doesn't.

I expect large concessions from the eurozone leaders at the very last minute, just one second before default should be officially declared.

Best regards,

Too Little, Too Late

I expect concessions as well.

But will they be enough? Can they be enough?

I rather doubt it. The first reason is German public opinion is overwhelmingly against the idea.

The second reason is Greece will need yet a third bailout. See Third Greek Bailout? Another €53.8 Billion Needed?

Taking on another €53.8 Billion or so hardly seems possible. Meanwhile, Check out the action on 2-year Greek debt.

Greece 2-Year Bond Yield Hits 28.5%

The one-year return on Greek 2-year bonds is -92.57% according to Investing.Com.

I stick with what I have said previously, Greece has Nothing to Lose by Default.

Mike "Mish" Shedlock

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