Greece’s Perverse Port Call

Greek shares were ahead 25 percent at the top of the MSCI core universe as a compromise was finally struck with the Troika after months of haggling to release EUR 10 billion needed for May bond repayment and bank recapitalization, as Piraeus went directly to the Eurobond market in a well-subscribed offer yielding 5 percent. Longer-tenor sovereign paper is at a post-crisis low under 7 percent as officials continue to posit commercial return by year-end with a primary budget surplus and recession exit, despite upcoming local and European Parliament elections where a tilt toward the opposition Syriza party could unseat the government. Its leader vows to renationalize privatized companies even though the program is far under target with just EUR 2.5 billion raised, and security considerations have entered with the Chinese potential bidders for control of Athens airport. Geopolitics is also prominent in view of a recent gas supply deal with Russia’s Gazprom which may be subject to EU sanctions after the Crimea takeover. Less than 1 percent GDP growth is seen in 2014 on continued deflation and 30 percent unemployment, although the current account is in surplus for the first time on a 15 percent tourism increase and 50 percent import compression. Amid the ECB’s regional stress test  additional banking system rehabilitation demands may be up to EUR 20 billion according to the IMF, with NPLs at 30 percent and credit caught in a downward spiral. Across the Eurozone lending is off over EUR 5 trillion since 2008 as bank government bond portfolios have swelled, as in Spain’s case where they tripled to EUR 275 notwithstanding establishment of a central bad asset management agency.

Traditional enemy Turkey has turned in an index loss of the same magnitude heading into its own municipal contests serving as a referendum on Prime Minister Erdogan’s AKP party rule. Rater S&P put it among the most damaged by capital outflows due to steep external financing requirements near 150 percent of GDP. Bank fallout from the consumer credit boom is under scrutiny as corporates face a short-term $35 billion debt hump over 80 percent in foreign currency. Gezi Park protests have resumed with the circulation of recordings implicating Erdogan and his son in alleged construction contract malfeasance, as inflation again veers toward double digits with lira depreciation, as the central bank keeps a tight monetary stance in the teeth of political opposition after reversing course. In an outward reconciliation gesture reunification talks have reopened on Cyprus, although it provoked the withdrawal of a linchpin coalition party as privatization plans are to be approved by parliament with utility workers on strike against them. Individual and business capital controls were loosened slightly as most of the population surveyed prefers to leave the EU with a 5 percent output shrinkage forecast this year despite a spike in Russian shell company registration on East-West port claims.