Greece’s Unrelieved Debt Digression

Greek stocks joined European neighbors with double-digit losses through November after US President Obama on a valedictory visit prodded Brussels for further official debt cancellation, and German Finance Minister Schaeuble dismissed it as a “disservice” ahead of a December Eurogroup meeting dominated by French and Italian election angst. The IMF has argued for an additional break as well while still refusing to participate in the latest program, despite Economy Ministry criticism. The Stability fund holding sovereign bonds may consider long-term fixed rate swaps extending and reducing the load in net present value terms, but operations have yet to be approved. GDP growth was almost 1 percent in Q3 on the best export and consumption performance since 2008, but recession will linger this year before 1-2 percent expansion predicted in 2017, when a 2 percent primary fiscal surplus is the target. Bank deposits rose in October, but the overall EUR 125 billion is the lowest since the early 2000s. The bad loan ratio is stuck at 40 percent as a “huge problem,” according to the Eurozone single supervisor, as Piraeus and National Bank look to enlist foreign distressed debt managers so they can again increase private sector credit, but mortgage foreclosure rules remain in flux and exporters are owed EUR 1 billion in tax rebates clogging cash flow. Prime Minister Tsipras’ popularity is at a nadir as the New Democrats reconstitute under a new leader pledging a business-friendly platform. They have attacked his party’s economic and diplomatic agendas, the latter under fire with rupture of Cyprus reunification negotiations. Island growth has reached 3 percent for a post-crisis high, with tourist arrivals up 15 percent in Q3 on diversion from Mideast security scares.

Turkey with its own 15 percent stock market decline has been a reluctant partner as it also is in a tussle with the EU on a refugee aid for visa-free access deal, with just the first EUR 600 million received of over EUR 3 billion promised. Brussels has criticized President Erdogan’s jailing of thousands of opponents after a failed coup attempt and his proposal to expand the post’s constitutional powers. The lira crashed toward 3.5/dollar as he repeated suspicions about an anti-Turkey foreign conspiracy and calls for lower interest rates. The central bank commandeered reserves to support the lira and then reversed course to lift the benchmark rate, which should also brake the 5 percent of GDP current account gap. Growth is in the lackluster 2.5 percent range despite loosening of macro-prudential consumer loan limits, and the currency pass-through threatens double-digit inflation revival. Russian trade and tourism rebound should help accounts into next year, but business confidence will stay shaky with the mass civil servant firings and a previewed referendum on presidential authority which will require parliamentary backing from outside the ruling party. The Czech Republic and Poland have been other share losers, with a coalition reshuffle and speculation over the future of the euro-koruna peg in the former and further relaxation of budget constraints in the latter with reduced mandatory retirement age. The populist government continues to brandish tax measures against foreign banks and retailers, and the 55 percent of GDP public debt statutory ceiling may be formally breached in the confused processes.