Goldman: "ECB Will Have To Go Big"

Submitted by Tyler Durden on 07/01/2015 09:12 -0400
http://www.zerohedge.com/news/2015-07-01/goldman-ecb-will-have-go-big
Early last week we presented something rather shocking: a note by Goldman Sachs suggested that as a result of the ECB's QE failure to push the EUR lower and with bond yields having risen instead of falling since the launch of the ECB's QE in March, and perhaps due to a perplexing conflict between the ECB and the Bundesbank when it comes to debt monetization, a Greek default sparking contagion blowout risk, not to mention a "seven big figure" tumble in the EURUSD, may be just what the ECB needs.
On one hand, the Goldman assessment was not surprising: after all the bank's top trade for 2015 has been that the EUR will go much lower from current levels so in many ways it was self-serving. But, what's far more stunning is that Goldman, accurately, assessed the ECB's needs in light of what is increasingly seen by many as a QE program that is faltering just 4 months after its launch, and the direct implication was evident: for all the posturing and bluffing from Greece that it won't be blackmailed, it may have fallen precisely in a trap set by none other than the ECB.
The only hurdle was getting the Greeks to accept the blame for the failure of the negotiations which happened, at least in the perspective of the Eurozone, when Tsipras announced the referendum after midnight on Friday. Merkel herself admitted as much earlier:

• MERKEL SAYS GREECE UNILATERALLY ABANDONED SUCCESSFUL TALKS

In other words, when it comes to Europe, Greece lost the blame game, and just like the Ukraine civil war last year, became an unwitting catalyst greenlighting Germany's concession to ECB QE, this time it may be Greece that launches the next step in the ECB's master plan: not just QE but more QE.
This is precisely what Goldman's Franceso Garzarelli, co-head of macro and markets research, admitted earlier today in an interview on Bloomberg TV, when he said that the ECB "will have to go big" if the situation in Greece worsens and leads to wider peripheral bond yield spreads.
He added that a close call or "no" vote at referendum will cause spread widening which as a result of the complete lack of bond liquidity borne out of the ECB's intervention and soaking up of government bond collateral, "the market is not deep enough to accommodate a rotation in risk at this point in time."
How ironic: what Goldman is saying that the more the ECB intervene, the more it will have to intervene. Which, of course, is very convenient for all those who stand to benefit the most from more ECB - entities such as Goldman Sachs...
In terms of specific markets, Garzarelli said that the 10Y Italian yield at 3% would be a sign ECB may move. He added that the market is currently “frozen” with Italy-Germany spread trading in a range because the direct risk from Greece is low, i.e., "if you have Greek risk on at the moment it’s because you want it"; because there is hope of an agreement and because expectation the ECB will limit contagion. The clear circularity of the last argument is too obvious to even note it.
And perhaps just to emphasize Goldman's point, earlier today another (ex) Goldmanite, this time the one in charge of the Bank of England, Mark Carney, directly refuted Obama who said Greece is not a "major shock" to the US economy, admiting this morning that "the outlook for financial stability in the U.K. has deteriorated in recent days as the crisis in Greece intensifies, underscoring how the Mediterranean nation’s debt troubles are reverberating outside the eurozone."
As the WSJ reported, when "presenting the BOE’s twice-yearly Financial Stability Report, the central bank’s governor Mark Carney said the risks associated with Greece and its failure so far to reach a deal with its international creditors have grown acute, and threaten to trigger a selloff in financial markets that could ripple through to the wider global economy."

Mr. Carney told reporters that although U.K. banks’ direct exposure to Greece through loans and deposits is minimal, that doesn’t mean the British economy would necessarily be immune to the fallout should Greece exit the eurozone.

“The situation remains fluid, and it is possible that a deepening of the Greek crisis could prompt a broader reassessment of risk in financial markets,” Mr. Carney said. That could ultimately hurt the confidence of businesses and households in Britain, he said.

The BOE has been working with the U.K. Treasury and authorities across Europe to draw up contingency plans to shield the U.K. economy from harm, Mr. Carney said, although he declined to elaborate. He did say regulators have in stepped up their scrutiny and engagement with the U.K. branches of some Greek lenders.

On Wednesday, U.K. Treasury chief George Osborne said Britain is hoping for the best but “preparing for the worst.”

“We stand ready to do whatever is necessary to protect our economic security at this uncertain time.”

Conveniently, if only for all those 0.01% of the economy who benefit directly from QE, so does the ECB: it is, in fact, ready (and would be delighted) to "go big"...

.... in case Greece votes "Oxi" on Sunday which would mean that, for the second time in the 21st century, Goldman wins and Greece loses.

The Unspoken Tragedy In The Upcoming Greek Bailout

Submitted by Tyler Durden on 06/23/2015 13:54 -0400
http://www.zerohedge.com/news/2015-06-23/unspoken-tragedy-upcoming-third-greek-bailout
A day after Tsipras stunned both his peers at the Eurogroup summit, and not to mention his fellow parliamentarians, many of which already voiced their opposition to what has been dubbed a "capitulation" by the Greek prime minister over threats of a financial system collapse if there is no deal within the week, many questions remain:

• will the Troika come back with even more demands such as boosting the hotel and restaurant VAT even higher (economic suicide for a nation where tourism is the only viable industry)?
• will the IMF concede that the Greek proposal will ever be sufficient if it does not incorporate the demanded pension cuts?
• will the deal pass Greek parliament; will a deal come too late to save the insolvent Greek banks?
• will Greece get a debt haircut (paradoxically as demanded by the same IMF which is also demanding spending cuts instead of tax hikes, over the objections of the ECB which holds the vast majority of Greek debt and is leery of impairments)?
• will the German parliament agree to validate any deal that may end up splitting Syriza in two or more factions?

While stock markets are convinced a deal is inevitable, after all the can must be kicked as it has been for the past five years...



... that may be more problematic than the algos expect. Here are some quotes showing that despite Tsipras' capitulation, few if any are ready to follow in his footsteps:
For example Austria:

Austria's finance minister said on Tuesday there would be no agreement on new Greek budget proposals unless there was a concrete plan showing how they would be carried out. But he added: "If there is no programme for actions that says what measure will be implemented when , we will not agree to it." "It should not, cannot, must not happen that a third (bailout) programme is started so to speak through the back door," he said. (Source)

or Germany:

 Members of Chancellor Angela Merkel’s coalition said the International Monetary Fund’s backing for a financing plan for Greece is key to German parliamentary support for a deal.  “If there’s to be a payout, we need a detailed calculation by the IMF,” Antje Tillmann, the ranking Finance Committee member from Merkel’s Christian Democratic bloc, said by phone. “It has to add up to something sustainable.”

“For us, the IMF’s verdict is the benchmark for a credible, acceptable solution,” said Joachim Poss, deputy caucus leader in the lower house for the Social Democrats, Merkel’s junior coalition partner. (Source)

Or the IMF:

The IMF is still unhappy with key aspects of Greece’s new economic proposals and German officials were irritated by the speed with which the commission welcomed them, warning that much work needs to be done... IMF representatives have told European officials that they are also not satisfied yet by Greece’s broader economic overhaul plans beyond its budgetary promises. The IMF sees a wider, business-friendly shake-up of Greece’s economy as essential if the country is to improve its long-term economic growth. (Source)

Or impartial third parties:

“Very large problems remain for a solution,” said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington. “The Greek government -- somewhat surprising for a self-professed reform and anti- austerity government -- seems to have merely agreed to impose a lot more austerity through higher taxes, but offers relatively little commitment to genuine economic reform.” (Source)

And certainly Greece:

“Personally, I cannot support such an agreement that is contrary to our election promises,” Dimitris Kodelas, a Syriza lawmaker associated with former Maoists, said in an interview. “I do not care about the consequences of my decision.” (Source)

The litany continues, and yet, somehow, we expect that in the next 48 hours, the machinery will be again in motion to kick the can once again for third time.
What happens then is basically a precursor to a third bailout package, one which according to previous reports, will be about €35 billion if and when a deal gets done.
At which point, assuming the funds are wired to Greece, the Athens government can congraulate itself on a job well done, even though, as some critics above pointed out, it "merely agreed to impose a lot more austerity through higher taxes, but offers relatively little commitment to genuine economic reform."
One can ask: why didn't any of the previous government impose higher taxes in the past 5 years? The answer is they did, and nobody paid them. And this is why this latest pre-bailout will also be a failure, followed perhaps by bailout #4, #5 and so on.
All of this is known to everyone.
What isn't, or perhaps merely needs refreshing, is that assuming all of the above is resolved in a satisfactory matter, what will be the use of funds of this latest and greatest bailout of Greece.
Sadly, the answer is also well known. We showed it first back in 2011 when we asked, rhetorically, "where does the Greek bailout money go?"
So for those who don't recall, here is a refresher from Macropolis, which a few months ago showed that of the €226.7 billion euros disbursed to Greece since the first Greek bailout, an equivalent to almost 125% of Greece 2014 GDP, "the combined allocation to the Greek state’s operating needs was just 11 percent of the total funding, at circa 27 billion euros."


That's right: hundreds of billions "spent" to rescue Greece... with the vast amount of proceeds used to promptly repay the very sources of these funds: the IMF and the ECB.
So will this time be any different, and will the Greeks receive anything extra? Alas no, because here are the near-term Greek debt interest and maturity payments...



... and the longer term.

So to emphasize, just in case there is any confusion: whatever money Greece receives as part of its third pre-bailout, followed by another full-scale bailout which according to SocGen will amount to another €60-80 billion or more, followed by another... until all Greek collateral - including its gold - finally runs out, will be used first and foremost to satisfy Troika, pardon, creditor claims.
Which means that of this widely touted €35 billion, Greece will be lucky to pocket a little over €3 billion. However, considering that is how much the Greek government has already extracted out of various public pensions and municipalities as part of its quasi-capital controls unrolled previously to preserve the illusion of solvency, after the hard fought "deal" finally is inked, the Greek population will be left with...
€0.
And that, sadly, is the unspoken tragedy in the upcoming Greek bailout. Because while it is one thing to bend over backwards to Troika interests if one at least gets something out of the deal, we completely fail to see why the Syriza government is risking its entire reputation, and doing what it is doing when in the end the Greek population which elected the "radical leftist" party with such wild hope and optimism has absolutely nothing to show for it.