Circus Greece - Another victory for pretend-and-extend and loss for European growth and discipline

Just when even the politicians were willing to give up came the breakthrough in talks with Greece. What made the "difference" is hard to say or interpret but crisis fatigue could have been one of the main reasons.

 

Personally, I had promised myself to stop commenting on Greece as there is little to add to a confusing, mainly emotional blame game, where no one talks about the future of Greece, Europe or the mandate needed for securing a real forward looking and functioning Europe.

 

The deal is of course is another pretend-and-extend master piece, but we gained two major insights:

 

1.)    A Grexit will only happen if Greece initiate it – The politicians stipulated conditions which is so tough that Greece is almost obliged to not implement them. The deal is a carbon copy of the 2012 MOU including privatizations which have failed to deliver twice before 2011/2014

2.)    The pretend-and-extend is more important than Europe's future but also domestic politics. Both Netherland and Finland came to Brussels with no mandate to give more money to Greece, promises to their voters in the case of Netherland and in Finland a parliamentarian majority against it, and still the "caved in".

 

This willingness to go back on the voters will be costly for politicians and that's maybe why this could be the last such deal where we 'socialize the risk of taking the loss' we need to take on Greece. It also makes for an interesting drama when Germany, Netherland, Slovakia, the Baltic nations and Finland's needs to ratify the deal later this week. I, personally, believe many politicians secretly hope Greece fails to go through saving them from facing the domestic protest of extending more debt to someone who has been financially bankrupt for more than five years.

 

 

 

 

The privatization fund will also be used to recapitalize the banks to the tune of 25 bln. EUR. Let me make this easy for you: The Greek banks is going to get 25 bln. EUR from a fund which since 2011 have only been able to sell less than 2 bln. EUR worth of assets.

 

Furthermore carefully reading Prime Minister Tsipras statement after the deal was announced this morning I have a hard time seeing him leading this reform process.

 

http://tinyurl.com/ppgo35v

 

 

The time line in place looks like this:

 

 

The market is slowly digesting the result. The "relieve rally" is fading towards the end of today, and bonds spreads has been stubbornly bid all day, despite the risk of "Grexit totally of the table" according to Juncker. Mind you Juncker is hardly the analyst you want considering his past luck with similar comments.

 

Conclusion:

 

Tsipras capitulated fully. He got nothing, or worse, he got less than he has. A total disaster for him and Greece.

This deal is copy of MOU from 2012 which didn't work.

Any REAL solution on Greece must be based on two things: 1.) Debt forgiveness for Greece 2.) A TRUE willingness for Greece to change and create its own future.

There is the widest accountability gap ever in EU history. No one wants to deal with the result of five years of pretend-and-extend. Politicians never been further away on EU from their voters than today.

The market will trade sideways up-and-down until this week is finished.

Europe is now negatively impacted in GDP terms by 0.25/0.30% from Greeks uncertainty. Another lost year from Europe.

 

If must again quote Churchill: If you are going through hell, continue walking"

 

Finally,

 

I think this is the proper closing: This is George Constanza doing a Greek negosiation – enjoy it may be the only laugh we get this week:

 

https://www.youtube.com/watch?v=nLLxXr4U7Gg

 

 

Med venlig hilsen  |  Best regards
Steen Jakobsen  |  Chief Investment Officer

 

Saxo Bank A/S  |  Philip Heymans Allé 15  |  DK-2900 Hellerup
Phone: +45 39 77 40 00  |  Direct: +45 39 77 62 23  |  Mobile: +45 51 54 50 00

 

Research: http://www.tradingfloor.com/traders/steen-jakobsen

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