closer to the abyss

Economics
Greek update: closer to the abyss
A dangerous game: Judging by their public comments, Greece’s radical political
leaders are threatening an imminent Greek economic suicide to force Europe and the
IMF to abandon their respective rulebooks. Whether they are bluffing, as the majority
of Greeks seem to believe according to opinion polls, only they can know. The rhetoric
from Athens sounds more like the start of a blame game than a prelude to
compromise.
Key macro views reports
Understanding Germany
– a last golden decade
ahead
13 October 2010
The Greek problem can still be solved easily if the government changes tack: But
with every semi-deadline that Greece misses and with every rude word that the Greek
radicals hurl at their creditors, the damage already done to Greece gets worse. That, in
turn, makes it more difficult for lenders to negotiate and ratify a new deal.
Euro crisis: the role of
the ECB
We can group possible outcomes in three stylised scenarios:
Saving the euro: the case
for an ECB yield cap
ʀ A deal in June: Greek prime minister Alexis Tsipras backs down at the last minute,
accepting some face-saving concessions from lenders. The current bailout gets
extended in time for Greece to pay the EUR1.6bn due to the IMF on 30 June or
shortly thereafter. Greece gets slowly back on track. Probability: 35%.
ʀ Greece stays in the euro after political change in Athens: No deal in June. But the
gap between what most Greeks want, namely to keep the euro even if that means
some short-term pain, and the Syriza stance leads to a political change as Greece
descends into a deepening recession once Athens starts to miss payments to its
lenders and, shortly thereafter, to its own population. That political change could
be a split within Syriza, with the left-wing radicals leaving the party, a new
coalition, new elections or a referendum on staying in the euro. Probability: 25%.
29 July 2011
26 June 2012
ECB ABS purchases:
expanding the toolbox
8 May 2013
Mind the court: the top
event risk in Europe
31 May 2013
The lessons of the crisis:
what Europe needs
27 June 2014
ʀ Grexit: Running out of money and refusing to strike a deal with the only willing
creditors it has, Greece eventually issues its own currency. “IOUs” or other interim
stop-gaps turn into a new drachma. We raise the Grexit risk from 30% to 40%.
ECB: question is not if,
but when and what?
Deadlines in Europe are rarely cast in stone, but time constraints do matter. Greece is
de facto broke. The longer it takes for Greek leaders to accept the offer which
European Commission president Jean-Claude Juncker presented to Mr Tsipras on 10
June, the more difficult it will be for lenders to ratify the deal. How things may play
out in detail is hard to predict. In order to not lose the blame game, all sides seem
reluctant to take decisive steps. Key dates to watch are:
Euro Plus Monitor 2014:
from pain to gain
ʀ 17 June: ECB discusses its support for Greek banks. If the ECB scales down its
support, the banks could be bust and/or run out of money shortly afterwards.
ʀ 18 June: Eurogroup meeting of finance ministers. A deal looks unlikely.
2 December 2014
18 December 2014
Global Outlook 2015: oil,
Putin and Greece
6 January 2015
Greek election:
election : the
reality
reality shock ahead
26 January 2015
ʀ 21 June: Potential emergency eurozone summit.
ʀ 25-26 June: Regular EU summit. This could be the very last chance to strike a deal
in time for Greece to pay the IMF EUR1.6bn on 30 June or shortly thereafter.
ʀ 20 July: Greece has to repay EUR3.5bn bonds held by the ECB. If Greece misses this
payment, it would be even more difficult for the EC to keep Greek banks afloat by
pretending that they are solvent.
Contagion risks: Expect some volatility, yes, but the eurozone has spent the past three
years strengthening its defences against contagion. Markets know that the ECB would
do whatever it takes to prevent serious contagion, for instance by activating its OMT
lifeline for Spain and Italy on top of its regular bond purchases. Private sector
exposure to Greece is too small to pose a systemic risk. Contagion is under control.
Economic impact: For Greece, it gets worse by the day. For the eurozone, we expect
the sheer noise to cause a small dent to business confidence now but no major impact.
Dr Holger Schmieding
Chief Economist
+44 20 3207 7889
[email protected]
17 June 2015
Economics
Greece: the sorry state of affairs
x
Athens has rejected the “ready to sign” deal offered to them by Mr Juncker on behalf of
Greece’s international creditors.
x
Instead of using the room for flexibility within the main parameters of that offer, for
instance to trade some cuts in pension entitlements for less military spending, Mr
Tsipras has called the offer “absurd”.
x
The Greek side has hardened its position and its rhetoric. Instead of honouring the
agreement on extending the bailout until 30 June 2015, which Greece signed on 20
February, Greece is demanding a completely different approach with major upfront
debt relief and virtually no cuts in pension entitlements. By accusing the IMF of
“criminal” responsibility for Greece’s misery, Mr Tsipras is burning rather than
building bridges.
x
Some of their rhetoric suggests that Greece’s radical leaders see themselves as lone
heroes who would rather go down fighting than to acknowledge reality.
x
In reaction to the Greek rhetoric and the lack of Greek action, attitudes of lenders seem
to be hardening as well. For the sake of their own credibility and that of their
rulebooks, neither Europe nor the IMF can be seen as ultimately rewarding Greece for
its hardline stance.
x
Europe wants to keep Greece in the euro and, as usual, is ready to be flexible.
Deadlines can be fudged for a while, compromises are rarely perfect, ways to kick a
can down the road can usually be found. But amid the scary Greek rhetoric,
contingency planning is coming to the fore. Only Greece could impose capital controls
and restrictions on deposit withdrawals. Athens will probably not resort to that in
order to avoid getting the public blame for it. But according to some media reports, the
ECB may consider restricting Greek access to its payments systems. x
69.7% of Greeks want to stay in the euro “no matter what”, according to a GPO poll
published yesterday. However, 54.3% still agree with their government’s negotiating
strategy. 67.8% believe that the standoff will end in a compromise with concessions
made mainly by the Greek side. In essence, the majority of Greeks seem to think that
their government, after playing hardball now to get softer conditions for new loans,
will eventually get reasonable. That points to a rude awakening in Athens if Mr Tsipras
does not change tack soon and strike a deal in June. The politics in Greece could get
noisy. For starters, both the pro-euro and anti-euro forces are reportedly planning
public rallies in Athens later today.
We have to watch out for news about potential ultimatums. Will eurozone finance
ministers on Thursday turn the “ready to sign” offer brokered by Merkel/Hollande and
presented by Mr Juncker last week into a formal “take it or leave it” offer? At this stage, we
do not yet expect the ECB to issue a formal ultimatum to Greece today, announcing the end
of emergency liquidity assistance or a reduction in other kinds of support for Greek banks
if Greece does not strike a deal within a few days. The ECB would only pull the plug if it has
full political backing for that. Instead, clear warnings from top ECB officials are likely.
However, we expect the ECB and Eurogroup to align their positions very closely. If finance
ministers wanted to put maximum pressure on Greece fast, warnings from the ECB may
come close to a de facto ultimatum shortly.
If Greece misses its payment to the IMF on 30 June, the country would not be officially in
default yet. It would enter a grey area instead. But if Greece cannot repay the bonds held at
the ECB on 20 July, the default could become official. With the Greek tax take likely to fall
by even more than GDP as Greeks scramble to hold on to the euros they have, Athens may
well have problems paying wages, pensions and welfare benefits in July, while it may still
manage to do so in June. If Greece does not strike a deal in June, it could turn into a very
hot summer in Athens.
2
Economics
Contagion risks?
Greece is tiny, just 1.8% of eurozone GDP by now. The euro crisis has always been about
contagion risks. Fortunately, the region has spent the past three years strengthening its
defences against contagion risks.
x Systemic contagion through sovereign bond markets is now highly unlikely thanks to
the ECB. The European Court of Justice made it plain yesterday that the ECB’s OMT
programme is legal. As markets know this, the programme probably does not have to be
activated to keep Spain and Italy out of harm’s way
x Contagion through the banking system has become very unlikely. Few banks outside
Greece are still exposed to serious Greek risks. And with banking union, the eurozone
can deal with isolated problems easily.
x No political contagion. The Greek case provides a sobering example of the damage that
populists can do once in power. The risk that voters elsewhere would want to follow the
Greek example and vote Syriza-type radicals into power looks very small.
Economic impact
For Greece, the economic situation and outlook are getting worse by the day. For the
eurozone, uncertainty is bad for business confidence and investment. We expect the Greek
noise to cause a modest correction in business confidence and to restrain the rebound in
eurozone business investment slightly over the next few months. That is part of our
forecast of 1.4% GDP growth for 2015. Once the uncertainty fades, with either a deal or
Grexit, confidence and investment in the eurozone will recover, probably with a very
audible sigh of relief.
3
Economics
Disclaimer
This document was compiled by the above mentioned authors of the economics department of Joh. Berenberg, Gossler & Co.
KG (hereinafter referred to as “the Bank”). The Bank has made any effort to carefully research and process all information. The
information has been obtained from sources which we believe to be reliable such as, for example, Thomson Reuters,
Bloomberg and the relevant specialised press. However, we do not assume liability for the correctness and completeness of all
information given. The provided information has not been checked by a third party, especially an independent auditing firm.
We explicitly point to the stated date of preparation. The information given can become incorrect due to passage of time and/or
as a result of legal, political, economic or other changes. We do not assume responsibility to indicate such changes and/or to
publish an updated document. The forecasts contained in this document or other statements on rates of return, capital gains or
other accession are the personal opinion of the author and we do not assume liability for the realisation of these.
This document is only for information purposes. It does not constitute a financial analysis within the meaning of § 34b or § 31
Subs. 2 of the German Securities Trading Act (Wertpapierhandelsgesetz), no investment advice or recommendation to buy
financial instruments. It does not replace consulting regarding legal, tax or financial matters.
Remarks
Remarks regarding foreign investors
The preparation of this document is subject to regulation by German law. The distribution of this document in other
jurisdictions may be restricted by law, and persons, into whose possession this document comes, should inform themselves
about, and observe, any such restrictions.
United Kingdom
This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not
for distribution to or the use of private investors or private customers.
United States of America
This document has been prepared exclusively by Joh. Berenberg, Gossler & Co. KG. Although Berenberg Capital Markets LLC, an
affiliate of the Bank and registered US broker-dealer, distributes this document to certain customers, Berenberg Capital Markets
LLC does not provide input into its contents, nor does this document constitute research of Berenberg Capital Markets LLC. In
addition, this document is meant exclusively for institutional investors and market professionals, but not for private customers. It
is not for distribution to or the use of private investors or private customers.
This document is classified as objective for the purposes of FINRA rules. Please contact Berenberg Capital Markets LLC (+1
617.292.8200), if you require additional information.
Copyright
The Bank reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or
duplicated in any form by any means or redistributed without the Bank’s prior written consent.
© June 2015 Joh. Berenberg, Gossler & Co. KG
4
Contacts: Investment Banking
www.berenberg.com
e-mail: [email protected] / e-mail US: [email protected]
EQUITY RESEARCH
RESEARCH
AEROSPACE & DEFENCE
Andrew Gollan
+44 20 3207 7891
Charlotte Keyworth
+44 20 3753 3013
Tom O'Donnell
+44 20 3465 2668
AUTOMOTIVES
Adam Hull
Paul Kratz
+44 20 3465 2749
+44 20 3465 2678
BANKS
Nick Anderson
Adam Barrass
James Chappell
Andrew Lowe
Eoin Mullany
Eleni Papoula
+44 20 3207 7838
+44 20 3207 7923
+44 20 3207 7844
+44 20 3465 2743
+44 20 3207 7854
+44 20 3465 2741
BEVERAGES
Javier Gonzalez Lastra
Adam Mizrahi
+44 20 3465 2719
+44 20 3465 2653
BUSINESS SERVICES, LEISURE & TRANSPORT
Najet El Kassir
+44 20 3207 7836
Stuart Gordon
+44 20 3207 7858
Simon Mezzanotte
+44 20 3207 7917
Yousuf Mohamed
+44 20 3465 2672
Matthew O'Keeffe
+44 20 3207 7895
Josh Puddle
+44 20 3207 7881
CAPITAL GOODS
Alex Deane
Sebastian Kuenne
Kai Mueller
Horace Tam
+44 20 3465 2730
+44 20 3207 7856
+44 20 3465 2681
+44 20 3465 2726
Internet www.berenberg.com
CHEMICALS
John Klein
Evgenia Molotova
+44 20 3207 7930
+44 20 3465 2664
CONSTRUCTION
Lush Mahendrarajah
Chris Moore
Robert Muir
Michael Watts
+44 20 3207 7896
+44 20 3465 2737
+44 20 3207 7860
+44 20 3207 7928
DIVERSIFIED FINANCIALS
Pras Jeyanandhan
+44 20 3207 7899
FOOD MANUFACTURING
Fintan Ryan
+44 20 3465 2748
James Targett
+44 20 3207 7873
FOOD RETAIL
Estelle Weingrod
GENERAL RETAIL
Michelle Wilson
HEALTHCARE
Scott Bardo
Alistair Campbell
Graham Doyle
Klara Fernandes
Tom Jones
Louise Pearson
Laura Sutcliffe
+44 20 3207 7931
+44 20 3465 2663
+44 20 3207 7869
+44 20 3207 7876
+44 20 3465 2634
+44 20 3465 2718
+44 20 3207 7877
+44 20 3465 2747
+44 20 3465 2669
HOUSEHOLD & PERSONAL CARE
Ana Caludi Muldoon
+44 20 3207 7841
Bassel Choughari
+44 20 3465 2675
James Targett
+44 20 3207 7873
INSURANCE
Peter Eliot
Iain Pearce
Matthew Preston
Sami Taipalus
+44 20 3207 7880
+44 20 3465 2665
+44 20 3207 7913
+44 20 3207 7866
LUXURY GOODS
Bassel Choughari
Zuzanna Pusz
+44 20 3465 2675
+44 20 3207 7812
MEDIA
Robert Berg
Laura Janssens
Jessica Pok
Sarah Simon
+44 20 3465 2680
+44 20 3465 2639
+44 20 3207 7907
+44 20 3207 7830
MID CAP GENERAL
Robert Chantry
Gunnar Cohrs
Sam England
Ned Hammond
Benjamin May
Virginia Nordback
Anna Patrice
Daniel Richter
Simona Sarli
OIL & GAS
Asad Farid
+44 20 3207 7861
+44 20 3207 7894
+44 20 3465 2687
+44 20 3753 3017
+44 20 3465 2667
+44 20 3465 2693
+44 20 3207 7863
+44 20 3207 7934
+44 20 3207 7834
+44 20 3207 7932
EQUITY SALES
REAL ESTATE
Tina Kladnik
Kai Klose
+44 20 3465 2716
+44 20 3207 7888
TECHNOLOGY
Adnaan Ahmad
Rebecca Alvey
Gergios Kertsos
Daud Khan
Gal Munda
Tammy Qiu
+44 20 3207 7851
+44 20 3207 7910
+44 20 3465 2715
+44 20 3465 2638
+44 20 3465 2746
+44 20 3465 2673
TELECOMMUNICATIONS
Wassil El Hebil
+44 20 3207 7862
Usman Ghazi
+44 20 3207 7824
Siyi He
+44 20 3465 2697
Laura Janssens
+44 20 3465 2639
Paul Marsch
+44 20 3207 7857
Barry Zeitoune
+44 20 3207 7859
TOBACCO
Erik Bloomquist
+44 20 3207 7870
UTILITIES
Andrew Fisher
Mehul Mahatma
Lawson Steele
+44 20 3207 7937
+44 20 3465 2698
+44 20 3207 7887
ECONOMICS
Holger Schmieding
Christian Schulz
+44 20 3207 7889
+44 20 3207 7878
E-mail: [email protected]
SPECIALIST SALES
BANKS & DIVERSIFIED FINANCIALS
Iro Papadopoulou
+44 20 3207 7924
CONSUMER
Rupert Trotter
+44 20 3207 7815
HEALTHCARE
Frazer Hall
+44 20 3207 7875
INDUSTRIALS
Chris Armstrong
+44 20 3207 7809
INSURANCE
Trevor Moss
+44 20 3207 7893
MEDIA & TELECOMMUNICATIONS
Julia Thannheiser
+44 20 3465 2676
MATERIALS
Jina Zachrisson
+44 20 3207 7879
TECHNOLOGY
Jean Beaubois
+44 20 3207 7835
SALES (cont.)
LONDON
John von BerenbergConsbruch
Matthew Chawner
Alexandra Clément
Fabian De Smet
Toby Flaux
Karl Hancock
Sean Heath
David Hogg
James Matthews
David Mortlock
Richard Payman
George Smibert
Anita Surana
Paul Walker
SALES
BENELUX
Miel Bakker
Alexander Wace
PARIS
Alexandre Chevassus
Thibault Bourgeat
Dalila Farigoule
Clémence La ClavièrePeyraud
Benjamin Voisin
FRANKFURT
Michael Brauburger
Nina Buechs
André Grosskurth
Joerg Wenzel
E-mail: [email protected]
+44 20 3207 7808
+44 20 3465 2670
+49 69 91 30 90 741
+49 69 91 30 90 735
+49 69 91 30 90 734
+49 69 91 30 90 743
SCANDINAVIA
Marco Weiss
+44 20 3207 7805
+44 20 3207 7847
+44 20 3753 3018
+44 20 3207 7810
+44 20 3465 2745
+44 20 3207 7803
+44 20 3465 2742
+44 20 3465 2628
+44 20 3207 7807
+44 20 3207 7850
+44 20 3207 7825
+44 20 3207 7911
+44 20 3207 7855
+44 20 3465 2632
+33 1 5844 9512
+33 1 5844 9505
+33 1 5844 9510
+33 1 5844 9521
+33 1 5844 9507
SALES (cont.)
ZURICH
Andrea Ferrari
Stephan Hofer
Carsten Kinder
Gianni Lavigna
Jamie Nettleton
Benjamin Stillfried
SALES TRADING
HAMBURG
Alexander Heinz
Gregor Labahn
Marvin Schweden
Tim Storm
Philipp Wiechmann
Christoffer Winter
+41 44 283 2020
+41 44 283 2029
+41 44 283 2024
+41 44 283 2038
+41 44 283 2026
+41 44 283 2033
+49 40 350 60 359
+49 40 350 60 571
+49 40 350 60 576
+49 40 350 60 415
+49 40 350 60 346
+49 40 350 60 559
LONDON
Mike Berry
Stewart Cook
Chris McKeand
Simon Messman
Paul Somers
+44 20 3465 2755
+44 20 3465 2752
+44 20 3207 7938
+44 20 3465 2754
+44 20 3465 2753
Jessica London
Emily Mouret
Peter Nichols
Kieran O'Sullivan
Jonathan Saxon
Lars Schwartau
Bob Spillane
+1 646 445 7218
+1 415 802 2525
+1 646 445 7204
+1 617 292 8292
+1 646 445 7202
+1 646 445 5571
+1 646 445 5574
SOVEREIGN WEALTH FUNDS
Max von Doetinchem
+44 20 3207 7826
CRM
Edwina Lucas
Ellen Parker
Greg Swallow
+44 20 3207 7908
+44 20 3465 2684
+44 20 3207 7833
INVESTOR ACCESS
Jennie Jiricny
Stella Siggins
+44 20 3207 7886
+44 20 3465 2630
EVENTS
Charlotte Kilby
Natalie Meech
Sarah Weyman
Hannah Whitehead
+44 20 3207 7832
+44 20 3207 7831
+44 20 3207 7801
+44 20 3207 7922
+49 40 350 60 719
US SALES
BERENBERG CAPITAL MARKETS LLC
Member FINRA & SIPC
ELECTRONIC TRADING
Daniel Eichhorn
+49 40 350 60 391
Matthias Führer
+49 40 350 60 597
E-mail: [email protected]
Colin Andrade
Burr Clark
Julie Doherty
Scott Duxbury
Kelleigh Faldi
Shawna Giust
Tristan Hedley
Zubin Hubner
+1 646 445 7214
+1 617 292 8282
+1 617 292 8228
+1 646 445 5573
+1 617 292 8288
+1 646 445 7216
+1 646 445 5566
+1 646 445 5572
CRM
Laura Cooper
+1 646 445 7201
INVESTOR ACCESS
Olivia Lee
+1 646 445 7212
5

Download Report