Blain's Morning Porridge - Extra - Some thots on Greece..

These are some answers I gave to questions about Greece:

Comments on Greek Debt – September 2017

1. How do you assess the timing of Greece's comeback to bond markets?

"The timing was fine, but it’s not important. The new bond was a technical success extending the debt maturity profile of the Greek bond market. But it’s like building a “Potemkin Village” – presenting a false rosy façade hiding the disaster behind it. Nothing about the new deal changes the underlying dynamics of the Greek Debt Disaster – except to create a spurious illusion of normality. The deal was a drop in the bucket of Greece’s total €315bln debt burden – including the Euro 225 bln of bailout funding.

Nobody is fooled."

2. Issuing new bonds is an important step for Greece to show it’s able to stand on its own feet. Though some analysts worry that if the Greek government becomes too confident, it might be inclined to reduce the reform program, something that could land back to the dark times of summer 2015. Do you see any risks associated with buying Greek government debt?

"The truth is very few real investors were attracted into the deal – it didn’t pay enough yield to attract the real distressed asset investors, and whatever Europe and the ECB says, Greece is still viewed as a high risk investment by most mainstream funds.

Also Greece should realise it is no longer perceived to be a sovereign issuer. It no longer controls the printing presses, and debt is Euros is debt in another country’s currency. Everyone is aware Greece can only borrow with the nod and the wink from Europe as part of the propaganda exercise that the Greek Bailout is working well. “See, its so successful, Greece is able to re-access markets”, say the propagandists. The Market was not fooled.

What the deal did was provide a thin veneer of semi-respectable new debt to cover-up the rotten wood debt burden underneath. Because of the way the bailouts have been structured, it looks like the next funding “problem” for Greece will come in 10 years when it has to start repaying seriously large amounts of debt each year. Until then the debt repayments look comparatively modest. Doing a couple of deals per year to pay the interest looks good.

But it’s part of the ECB/EU “Pretend and Extend” approach to Greece’s debt mountain. Effectively, the €315bln of rescheduled debt is sitting in a “warehouse” being gently serviced till it starts to come due. The hope must be that somehow over the next 10-years that warehouse of debt can be made to disappear through complex financial alchemy, or by the much delayed realisation it has to be written down – in which case we should be asking why it wasn’t done right at the start!

Unfortunately Greece allowed itself to become a complicit player in an enormous but deeply damaging Game of Debt with Europe. In return for not breaking Europe by unilaterally defaulting on its debt, (which would have trigger bank and sovereign collapse across the EU), and accepting a ruinous bailout and austerity measures, Greece gets EU support and avoids the dislocation that would have followed exit from the Euro.

3. How should debt relief look like for Greece? For example, would you say that Greek debt needs to be written off? What message would a deal like that send to the markets?

"The bottom line remains that Greece desperately needs complete and immediate financial restructuring. It’s clear it cannot sustain and service the current debt – it should be written down. It’s clear it is using the wrong currency – it would do better to exit and devalue to become competitive and prosperous again. It’s clear the costs of austerity and the damage done to the fabric of Greek society have simply not been worth it. A short sharp painful cut would be better than long-term invalidity!

The enormous social damage done to Greece through Europe’s debt solution demands has achieved nothing for Greece, but kept Europe from systemic collapse. That was never going to be a good deal for Greece!"

4. Greek PM Alexis Tsipras keeps repeating that the crisis is behind us. Do you see any signs that this statement could truly imply? And if yes, which are these signs?

"Tsipras made a deal with the devil in 2015. Now he is “spinning like a top” to preserve his remaining credibility. He’s fortunate that Greek Politics has become so “crisis fatigued” there really isn’t any credible alternative. But as the old joke goes: Q. how do you know a crisis is about to erupt? A. When a politician tells you the crisis is over!

Lots of things could upset the current balance, a reopening of the refugee crisis or renewed hostility with the IMF/EU/ECB/Germany divide.

It is a nonsense to claim the crisis is over. Unless there is a complete renegotiation of the current austerity package and debt write off, then Greece is still only at the beginning of Long Long Term Debt impoverishment that will affect many generations yet to come!"

5. Does Greece offer opportunities for investors?

"Normally we say “things are never as bad as we think”, but in Greece the social damage has been extraordinary. That means there are locust like opportunities to buy enforced sale state assets and property.

I have to say Greece is such a beautiful county is hard to resist buying property when it is distressingly cheap, and as this year shows the Tourism business will recover."

6. One last question for Brexit and its consequences. When Britain leaves the EU, the eurozone might become the EU. What does Brexit mean for the eurozone? Do you expect this event to be the start of the collapse of the Monetary Union?

"What ever Herr Junker says, Europe is likely to be the main loser from Brexit. The Euro remains a very imbalance currency between Germany and the rest. Although it is currently strong, that is because markets are gaming the ECB and Draghi and hints of European recovery causing interest rate normalisation. But nothing is essentially fixed on the imbalances. Many southern European banks remain broken and sovereign debt could still re-errupt when Draghi ends QE.

That said, the UK has made some serious negotiating errors. It should have immediately said that all Europeans living in the UK would have permanent rights the same as UK citizens and that the UK’s doors will always be open to Europeans. Instead the Government has made us look racist. That’s a bad strategy when it open doors would have got European electorates in favour of Britain. Now the EU Hierarchies can afford to be tough on the UK and get away with it.

As history shows, delusional nations that set out to “punish” Britain seldom do well. We’ve dealt with the French (repeatedly), The Spanish, The Germans, and countless others.. A bunch of jumped up Bureaucrats in Brussels will be a pushover! (Only joking of course.. we’d rather be Europe’s friend!)

But long term the EU needs open dialog and Trade with the UK even more than the UK needs Europe. The UK now looks very competitive and industry is flocking to it because costs are cheap and the labour force is paid less!"