After rallying on every bit of warrantless hope lately, today the stock markets continued there merry way: down.
This is likely due to the fact that China is far more important globally than Greece, and for the first time in a while, there are a couple of simultaneous crises: One in the eurozone, and one in China.
The real panic party starts when the US gets into the act with another recession or even a slowdown from the second quarter GDP bounce.
Meanwhile, we have another “final chance” for Greece to do the wrong thing: accept another bailout and deepen its recession.
The latest “final” deadline is Sunday. It follows numerous “final” deadlines over the past month.
We Really Mean It This Time
Christian Noyer, head of the Banque de France and a member of the ECB’s decision-making governing council, said “It is the final deadline, afterwards it is too late. I fear that if there is no agreement on Sunday the Greek economy will collapse and there will be chaos.”
There does seem to be an “air of finality” this time because Greek banks are insolvent, flat out of cash.
Then again, I don’t think the real dealing begins until after Greece is forced out of the eurozone.
Majority Believe Grexit Will Happen
And for the first time ever, a majority of people polled feel that Grexit is the likely outcome.
Here’s the question of the day: Is Grexit what Alexis Tsipras, the Greek prime minister, really wanted all along?
If so, and assuming that’s what happens, he played his hand masterfully. His request for a 3-year ESM bailout and his caving in to some demands makes it appear he hopes to avoid Grexit.
Greece Requests 3-Year ESM Bailout
The Guardian reports Greece Requests 3-Year Bailout and Promises Reforms Within Days.
Greece has submitted an application for a third bailout programme, in an attempt to avoid crashing out of the eurozone.
The finance minister, Euclid Tsakalotos, marked his third day in office by requesting a three-year aid plan from Europe’s permanent bailout fund, the ESM.
He pledged that Athens would immediately begin implementing tax and pension reforms, starting next week, if Europe would provide funding needed to avert bankruptcy.
On Tuesday night, the eurozone agreed to give Greece a couple more days to submit a new reform plan after Greek voters rejected creditors’ demands in a referendum, with a full EU summit on Sunday the final deadline to reach a deal.
City economists polled by Reuters now believe there is more chance that Greece will leave the euro than remain. This is the first time the poll has shown a majority in the Grexit camp.
Promises, Promises
Tsipras made promises of pension reform and tax reform. But are those anything he can realistically promise?
Greek parliament would have to approve those changes, and there is no sign his own party would even be willing.
Austerity Laboratory
The Financial Times quoted Tsipras on the “Austerity Laboratory”.
Tsipras told the European Parliament that both sides in negotiations have been “called upon to produce a fair compromise”, arguing that a deal without public backing inside Greece was futile.
“My country has been transformed into an austerity laboratory. This experiment has not been a success,” Mr Tsipras said. “We demand an agreement with our neighbours, one that gives us a sign we are exiting from the crisis which will demonstrate light at end of [the] tunnel.”
Those statements are simply not in alignment with reform promises.
Moreover, Chritian Noyer warned “In the last six months we maintained the lifeline set up for Greek banks and put enormous sums of money on the table. Our rules oblige us to stop immediately at the point when there is no prospect of a political accord on a programme, or at the point when the Greek banking system crumbles — which would happen if it enters generalised default on all its debts.”
Finally, Greece requested another “bridge loan“, but the eurozone leaders crammed that in Tsipras’ face saying that offer had been allowed to lapse and Athens must now come forward with a more comprehensive plan for them to agree a new deal.
Anyone Really Want a Deal?
Here’s the second question of the day: Does either side really want a deal?
Based on statements by Greece and the creditors it appears both sides would be happy with Grexit as long as they can blame the other party.
Let’s hope so. Another bailout will just be additional money that will be defaulted on. It’s time to face the facts. What cannot be paid back, won’t be paid back.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
