By all accounts, the Greek government’s flirtation with Grexit almost ended in a shotgun wedding in the early hours of Monday morning. With the pastor summoned and en-route, Schäuble beaming at the prospect of the forthcoming nuptials, Tsipras had a change of heart, left Miss Drachma standing at the altar and conceded to the majority of the creditors’ demands. In so doing he put country above party, made a final break with the castles in the air spun by the ‘Sage of Aegina’, and honoured his promise to the electorate to keep Greece in the Eurozone. That the negotiating strategy he and his former Finance Minister had employed over the preceding five months had brought Greece to the point where it had no option but to acquiescence to the terms demanded lest it was summarily ejected from the Euro is now neither here nor there: the deadlock has been broken and a path to continued Eurozone membership has opened up. True, it won’t be easy, but to quote various members of the Eurogroup: where there is a will, there is a way.
In a Kafkaesque moment which saw the Greek nation being asked to vote on whether their government should accept a proposal that no longer officially exists, it looks like Greece’s fourteen year membership of the Eurozone is about to come to an abrupt and chaotic end. The choice of Greek voters to take the well-worn path of refusal and just say ‘No’ will, according to Tsipras, enable the country to regain its dignity and pride. But it remains to be seen what the true cost of this temper tantrum will be. Prior to today’s result, GDP forecasts for Greece had already seen major downgrades as a consequence of the uncertainty caused by protracted negotiations as well as from the negative impact of the recently-imposed capital controls. But it now looks like that’s just for starters with the main course yet to come.
The curtain is about to fall on the tragicomedy that has constituted Greece’s five-month-long negotiations with its creditors. And it’s a real cliffhanger. The hero of the piece, a would-be messiah with the manner of a demagogue, having led his people to the very brink of the abyss, suddenly turns to ask for their blessing as he guides them over the edge. Suicide by Democracy.
Monday saw the latest twist of the Greek saga with reports that Tsipras’ government had, for the first time in the last five months, come up with some credible proposals. Positive noise from the more dovish of the creditors sparked a relief rally in European equities, with the Athens market up c.9% and the DAX up c.4%. Markets are making further headway today as hopes begin to crystallise that the long-awaited deal may be in sight.
As has been the case with much that has happened between Greece and its creditors, confusion – or perhaps more precisely, misdirection – has been the name of the game. Media reports of the wrong papers being sent to the technical teams on Sunday night tally ominously with Tsipras’ insistence for the process to take place at the ‘political’ rather than the ‘technical’ level. Is is simply the case that the Greek side wished to ensure that there was not sufficient time to begin assessing the detail of their proposals on Sunday, thus making certain that nothing substantive could be raised against these on Monday? If so, the theory behind this might run to the effect that by creating positive expectations in the media and the markets, it then becomes more difficult for the creditors to disappoint those expectations by reviewing the proposals in too rigorous a manner; if the headline numbers appear to be delivered, does it necessarily matter how they are reached? Isn’t it better, after all, to approach the matter from a ‘political’ rather than a ‘technical’ perspective? I think it is obvious whom we have to thank for this latest example of gaming.
The end-game approaches. Or, more accurately, the curtain is about to fall on the charade that has been played out on the European stage over the last five months. It has been a curious spectacle, a blend of game theory (so-called) and defiance, with Finance Minister Varoufakis betting that the opposition would crumble faced with the prospect of Grexit and Prime Minister Tsipras channelling popular anger at what is seen as the attempted subjugation of Greece by its creditors. Whilst the majority of Greeks (still) approve of their government’s negotiating tactics, the cost in economic terms has been significant: Greece’s economy, after tentative signs of revival last year, is back in recession, forecasts for the primary surplus have been cut by more than half and deposits have fled the country, with the ECB having to make good the system shortfall via the ELA mechanism.
Quaerite Emptor! Is the London Residential Property Bubble about to Unwind and, if so, what are the Implications for Stocks?
I have been struck by a number of recent data points indicating a slowdown in the London housing market. For example, data provided by Savills (Savills Prime London index) show that prime central London residential prices actually fell in Q4 2014. To put this in perspective: price inflation, having flatlined at +0.4% m-o-m in Q2 and Q3, turned negative in Q4, with prices falling by -4.2% q-o-q, taking the price move for the year as a whole into negative territory (-1.3% y-o-y, vs +7.9% y-o-y in 2013). This, I believe, marks the first annual negative price move in prime central London property (as measured by this index at least) since 2008. Continue reading
Greek Election Update
It’s 2am in Athens and results are still coming in. It is clear that Syriza has won a historic victory, but it is, as yet, unclear whether it will achieve an outright majority. The nation that invented drama has not disappointed: estimates put Syriza on 149-151 seats, with 151 seats required for an outright majority. This is going down to the wire.
The unequivocal success of Alexis Tsipras’ party at the polls suggests that, even if he falls one or two seats short of an outright victory, he is likely to go down the coalition route, rather than opting not to do so with the aim of securing an outright majority at a second election. A further factor here is the likelihood that far-right Golden Dawn will be the third placed party – extraordinary not least due to the fact that a number of senior members of this party (including party leader, Michaloliakos) are currently residing in prison. The mechanical process whereby the second and third placed parties are asked to form a coalition if the winning party either cannot, or will not do so, is an eventuality that the Greek political establishment will wish to avoid. This suggests that Syriza will choose to enter into a coalition and that potential coalition partners will be more amenable. After all, Tsipras – given the size of the Syriza vote – has his choice of partners, and the rhetoric has been noticeably toned down by party representatives today, suggesting this is indeed the strategy, as well as making it easier for potential partners to enter into discussions. If he fails to achieve a parliamentary majority, Tsipras will have three days to try to form a coalition. The odds have to be that he will do so. So it looks almost certain that a new government will be formed this time around with Syriza in the driving seat. Continue reading