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Tuesday, June 2, 2015

Reality Check On Greece's Foreign Funding

Per April 15, 2015,

* the Bank of Greece owed foreign financial institutions (mostly Central Banks) a total of 98.770 MEUR, up from 43,972 MEUR in November of 2014
* the entire Greek banking sector owed the Bank of Greece 112.841 MEUR, up from 44.853 MEUR in November of 2014
* the entire Greek financial sector (including the Bank of Greece) owed foreign financial institutions (mostly Central Banks) 103.457 MEUR, up from 54.499 MEUR in November of 2014

If SYRIZA's strategy was to milk foreign financial institutions (primarily for the purpose of paying out domestic savers and buying T-bills) before giving them the shaft, that strategy certainly was successful.

9 comments:

  1. That is just Capital flight/slow motion bank run on the greek banking system not milking foreign finacial institutions.

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    1. Prey tell me where the substitue for the result of losing funding due to deposit flight comes from? It did come from somewhere; otherwise the banks would have had to close doors.

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  2. Mr. Kastner,

    Tsipras has done various things especially in the last month, that no sane PM or even political party leader would do, if he intended to follow a plan to default on purpose. Have faith in his "relationship building" skills.

    The Europeans have been playing the "good cop-bad cop" using Juncker and IMF.
    Tsipras has been playing the "good cop-bad/crazy cop" using minister Varoufakis.

    Tsipras would have defaulted no question if he had become PM at the time Samaras did. Because the internal devaluation he would have been forced to follow and the alignment with the odious PASOK policy, would disintegrate his party in 3 months. Now Tsipras sees that a return to the drachma, would cost him politically more than doing the last mile of cuts. He will serve the deal with some more explicit debt solution and he will stay in the euro.

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  3. In the same period the Greek government has raised their expenses, reduced their income and not introduced any reforms. Well, if the Greeks can get so much money for sliding backward it is no wonder they want biiig money for promising progress. The money is by courtesy of Mr. Draghi. He has re-defined his role as a civil servant to that of a politician, he is not even shy of admitting it, yesterday, at DW television, he said "the ECB wants Greece to stay in the EURO", it smacks a bit of the royal "We". The EU has emulated Greece, weak institutions, no laws or rules, political solutions to all problems. That attitude, however, got Greece in the situation they are in today.
    Lennard

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    1. Sadly, your prejudiced comment reveals your complete ignorance. As a matter of law, the ECB president is obliged to support the eurozone. There is no legal exit for any member of the eurozone, therefore the ECB has no choice but to support every single member of the eurozone. Anything less would be a serious dereliction of duty and could result in prosecution for such.

      That structure was put in place by France and Germany. You should direct your whining to them, for their choice of architecture of the eurozone -- both economically and legally.

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    2. We have been through this before. The ECB is obliged to support the banking systems of the Eurozone (not the members per se; that would be an outright violation of its statutes). However, that support is subject to the ECBs rules. Had the ECB adhered to its rules from the start, they would have stopped funding Greek banks back in 2010 when Greek bonds were rated junk. By its own rules, the ECB can only accept first-class collateral for lending to banks. Ok, that requirement has been watered-down for everyone. In Greece, the ECB has softened the collateral requirement to the tilt and they are meeting every week to discuss whether they can justify lending based on that garbage collateral. If everything were as automatic as you suggest, they wouldn't meet. In the US, the FDIC would have bailed-out Greek banks (via temporary nationalizations) a long time ago.

      The above is unrelated to Grexit. It is perfectly legal in the EU for corporations, banks and countries, too, to declare insolvency. Or as Varoufakis wrote on February 18, 2012: "Greek default does not equal Greek exit!"

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    3. Klaus, perhaps you could do a post bringing together collateral standards, consequences of pooling through ECB capitalization, Target2 liquidity effect v. repo rates etc.

      PD

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    4. @ PD
      You are asking me "to define the universe and give two examples"... But maybe the following post answers some of your questions:

      http://coppolacomment.blogspot.co.at/2015/06/oh-dear-professor-sinn.html

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  4. Heh, if it's gonna be an ask, it might as well be a big ask right?

    But I confess being non-plussed so much ink is being spilled over settlement systems. I suspect Herr Sinn is asking the wrong question, and focusing on Target. Surely it's not the "foreign funding" of the Bank of Greece that's critical (of cse to Frances it's "NCB to NCB" within the ECB structure, one euro, one central bank, single market for capital flow).

    Surely it's about the basics. What's the effect of deposit flight of such size on Greek commercial banks, LTV, Tier 1, asset quality, LCR etc. Even more, it is problematical for banks to trade while insolvent, as it is potentially a fraud on new deposits/creditors. But let's end with one issue you alluded to: which (foreign? local?) investor will sign off on the funds for bank recap, how much it will cost, and what will it take for counterparties to trust them now and future?

    PD

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