Greek Fire: Tsipras Steps Aside

With Germany voting to approve the first payment in the Third Great Greek Bailout, PM Alexis Tsipras was allowed to stay until the check cleared today before his Syriza party made it clear that his time was over.

Greece's Prime Minister Alexis Tsipras is set to call a snap election for 20 September, according to Greek media. 

Mr Tsipras has faced a rebellion within his ruling hard-left Syriza party over a new bailout deal which has been agreed with international creditors. 

Greece received the first €13bn ($14.5bn) tranche on Thursday, allowing it to repay a debt to the European Central Bank and avoid a messy default. 

But the austerity measures needed for the deal angered many in his party. 

Mr Tsipras had to agree to further painful state sector cuts, including far-reaching pension reforms, in exchange for the bailout - and keeping Greece in the eurozone. 

The overall bailout package is worth about €86bn over three years. The payment of the first tranche was made on Thursday after the bailout deal - Greece's third in five years - was approved by relevant European parliaments. 

Mr Tsipras is to make a televised state address later on Thursday. 

He is set to submit his resignation to the president to clear the way for the elections, the media reports said. 

Energy and Environment Minister Panos Skourletis said on state TV: "The certainty is that the need for elections has arisen."

It was a done deal and apparent ever since that Tsipras convinced enough in the Greek parliament to vote for the bailout package that he would in exchange fall on his sword, and tonight he does just that.   The alternative was a vote of no confidence that he clearly would have lost, and so after 8 months the tale of the man elected to stand up to the Troika ends with his complete defeat.

We'll see where Greece goes from here, but the idea that things will be better after a month from now is silly.

StupidiNews!

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StupidiNews!

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• The European Central Bank may be considering slowing down emergency liquidity support to Greek banks if a bailout deal cannot be reached soon.
• Norway plans to become the first country to entirely transition away from FM radio to digital radio starting in 2017.

Greek Fire: The Endgame, Con't.

Zee Germans are apparently quite through messing around with the Greek dancing around the issue, and German Finance Minister Wolfgang Schaeuble has all but dropped the hammer on Athens.

Speaking to reporters in Istanbul after a two-day meeting of finance chiefs from the Group of 20, Schaeuble said “it’s over” if Greece doesn’t want the final tranche of the current aid program. Greece’s creditors also “can’t negotiate about something new,” Schaeuble said. 

Greek government bonds had risen today for the first time in five days on optimism there might be room to move toward an agreement that will help ensure the nation isn’t left short of funds. That had come after Greece had offered compromises in a bid to push for a bridge plan to stave off a funding crunch and to buy time for negotiations to ease austerity demands.

Any accord, however, would require an easing of Germany’s stance in the standoff between Greece and its creditors over conditions attached to its 240 billion-euro ($272 billion) lifeline. An impasse risks leaving Greece without funding as of the end of this month, when its current bailout expires, and may put Europe’s most-indebted state’s euro membership in danger. 

Schaeuble damped expectations, saying euro region finance ministers meeting in Brussels tomorrow won’t negotiate a new program for the cash-strapped country as a program is already in place and was arrived at after “arduous” negotiations.

He also said media reports that the European Commission will give Greece six more months to reach an aid deal “has to be wrong” because he’s not aware of such a plan and the commission isn’t in charge of making such decisions. Schaeuble said he had discussed the rules of the aid programs at a meeting with his Greek counterpart Yanis Varoufakis in Berlin last week.

Ouch.

Take it or leave it, new Greek PM Alexey Tsipras.  Ball's in your court now, and Zee Germans have called Athens out to put their cards on the table and take the deal.  How will the Greeks respond?  Is there really a six-month reprieve in the works, or is it time for the Greeks to make a decision?

Austerity or Freedom, boys?

Choose.

Last Call For Greek Fire: The Endgame Cometh

The final battle for the Greek economy and its future is being staged this week, in one hell of a dangerous game of chicken.

Leftist Prime Minister Alexis Tsipras laid out plans on Sunday to dismantle Greece's "cruel" austerity program, ruling out any extension of its international bailout and setting himself on a collision course with his European partners.

In his first major speech to parliament since storming to power last month, Tsipras rattled off a list of moves to reverse reforms imposed by European and International Monetary Fund lenders: from reinstating pension bonuses and cancelling a property tax to ending mass layoffs and raising the mininum wage back to pre-crisis levels.

Showing little intent to heed warnings from EU partners to stick to commitments in the 240 billion euro bailout, Tsipras said he intended to fully respect campaign pledges to heal the "wounds" of the austerity that was a condition of the money.

Greece would achieve balanced budgets but would no longer produce unrealistic primary budget surpluses, he said, a reference to requirements to be in the black excluding debt repayments.

"The bailout failed," the 40-year-old leader told parliament to applause. "We want to make clear in every direction what we are not negotiating. We are not negotiating our national sovereignty."

Somebody will blink here.  Greece is pretending like its economy isn't in flaming shambles without EU bailout cash, and the EU is pretending like kicking Greece out won't unravel the euro for the rest of the eurozone.

At least one of the two is wrong to the point of catastrophe, if not both.  We'll see here, but with the EU set to meet Tuesday and Greece running on fumes right now, a decision is going to have to come fast to avert a train wreck.

I'm not sure at this point that the wreck can be stopped, either.  Neither is The Kroog:

What we’re looking at here is, in short, a very dangerous confrontation. This isn’t diplomacy as usual; this is a game of chicken, of two trucks loaded with dynamite barreling toward each other on a narrow mountain road, with neither willing to turn aside. And all of this is taking place within the European Union, which is supposed to be — indeed, has been, until now — an institution that promotes productive cooperation.

How did Europe get to this point? And what’s the end game?

Like all too many crises, the new Greek crisis stems, ultimately, from political pandering. It’s the kind of thing that happens when politicians tell voters what they want to hear, make promises that can’t be fulfilled, and then can’t bring themselves to face reality and make the hard choices they’ve been pretending can be avoided.

I am, of course, talking about Angela Merkel, the German chancellor, and her colleagues.

It’s true that Greece got itself into trouble through irresponsible borrowing (although this irresponsible borrowing wouldn’t have been possible without equally irresponsible lending). And Greece has paid a terrible price for that irresponsibility. Looking forward, however, how much more can Greece take? Clearly, it can’t pay the debt in full; that’s obvious to anyone who has done the math.

Unfortunately, German politicians have never explained the math to their constituents. Instead, they’ve taken the lazy path: moralizing about the irresponsibility of borrowers, declaring that debts must and will be paid in full, playing into stereotypes about shiftless southern Europeans. And now that the Greek electorate has finally declared that it can take no more, German officials just keep repeating the same old lines.

And of course that can no longer work.  I'm not sure if anything can at this point, but we'll know pretty quickly one way or the other.

Last Call For Return Of The Greek Fire

Long time readers know of my Greek Fire series of posts running through 2012 involving Athens and how much trouble the Eurozone would be if it defaulted.  Germany managed to get a handle on Greece in late 2012 and stabilized the country for a couple years.

In 2015, with the Greek government now falling apart and snap elections scheduled for three weeks, the prospect of a Greek collapse and exit for the Eurozone is again on the radar.

German Chancellor Angela Merkel came under fire Sunday over a magazine report suggesting she would be prepared to let Greece exit the euro should a far-left party win a snap Greek election.

Der Spiegel news weekly quoted government sources as saying Berlin sees a Greek exit from the eurozone as "almost inevitable" should the radical leftist Syriza party win the vote and abandon Athens' current austerity course.

Both Merkel and her finance minister Wolfgang Schaeuble had come to consider that Greece's departure from the single-currency bloc would be "manageable", the magazine said.

The recovery underway in other formerly problem economies such as Ireland and Portugal, the establishment of a permanent eurozone bailout fund and the creation of a banking union had all bolstered Berlin's belief that the contagion from a fresh Greek crisis would be limited, it added.

Greece's parliament was dissolved Wednesday after the assembly failed to agree on a successor to outgoing President Karolos Papoulias in three successive votes.

A snap election has now been called for January 25. Syriza is currently ahead in opinion polls.

German media saw the Spiegel article as an attempt by Merkel and Schaeuble to put pressure on Greeks and Syriza leader Alexis Tsipras, who has vowed to end austerity policies.

Neither Merkel's office nor Schaeuble's finance ministry would confirm or deny the Spiegel report, which drew condemnation from members of both Merkel's conservative CDU party and the Social Democrats (SPD), the junior partners in her coalition government.

Nobody believes Germany is going to let Greece out of the Euro.  Pretending otherwise isn't even fooling the German press, let alone the Greek players.  Should the Syriza party come to power in Greece however, we'll see what happens.  Austerity has not solved the Eurozone problem for anyone, not Spain (25% unemployment, 54% unemployment for people under 25), not Ireland (still stuck with bad banks), and definitely not Britain.

We're right back into 2012 on that side of the pond, and it's going to get nasty soon.

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• Apple's latest software upgrade for OS X, codenamed Mavericks, is available today, and in a big change, the upgrade to 10.9 is free.

Greek Fire, Part 64

Looking back, I've been tracking the Greek Fire story now for two plus years, ever since February 2010.  Pretty much all the macro-level stuff has been spot on.  The time frame has been extended time and time again by the so called "Troika" of the International Monetary Fund, the European Central Bank, and the European Commission, but the structural changes necessary to fix the problem never appeared, and were only made worse by austerity measures.  Greece has gotten bailout after bailout, but it looks like this time the Troika may be about to cut Greece off.

Some 30 months later, we appear to have finally entered the endgame.

..

So what happens now?  Greece's next big payment is due August 20.  If they don't have the money on hand, then default is the name of the game and we begin the Greek endgame in earnest.  Increasingly this default scenario is now looking like not just a distinct possibility, but the expected outcome.  Indeed, Germany is now openly talking about life after a Greek exit from the Euro.

Greece should start paying half of its pensions and state salaries in drachmas as part of a gradual exit from the euro zone, a leading German conservative was quoted on Monday as saying.

Alexander Dobrindt, general secretary of the Christian Social Union (CSU), the Bavaria-based sister party of Chancellor Angela Merkel's Christian Democrats (CDU), has long argued that Greece would be better off outside the euro zone.

"With Greece we have reached the end of the road. There must not be any further aid. A country which does not have the will to fulfil the conditions, or is not able to do so, must get a chance outside the euro," Dobrindt told the daily Die Welt.

German conservatives have said enough.  The Troika has all but pulled the plug.  All eyes are now on August 20th.  We'll see what transpires.

Last Call

President Obama spoke at length from the close of this evening's G-20 summit in Los Cabos, Mexico and had quite a bit to say about the plan to tackle Europe's looming financial disaster.

President Obama said tonight that European leaders must quickly fix their ailing economies and banking systems in order to help boost world financial markets -- and create jobs in the United States.
"Slower growth in Europe means slower growth in American jobs," Obama told reporters after the G-20 summit it Los Cabos, Mexico.

He also acknowledged that the festering European problems could cost him the election -- but said that's not his immediate concern.

"If we're taking the right steps, if we're doing the right thing, then the politics will follow," Obama said.

After a two-day summit of the Group of 20 economic powers, Obama expressed confidence that Europe is "determined to move quickly on measures to promote growth and investment," which he said could help "provide confidence and break the fever."

"Our friends in Europe clearly grasp the seriousness of the situation and are moving forward with a heightened sense of urgency," the president said.

I'm glad that the Europeans are aware they are pretty close to the point of no return, but the reality is they've yet to do anything substantive to fix the Greek Fire, and time is now running critically short.  Spain's short-term borrowing costs have jumped to over 5% interest, and their 10-year bonds are at 7%.  They are in the danger zone and will not be able to keep this up for more than a few months at most at these levels, and that time decreases rapidly if rates keep rising.

Germany remains the key to any eurozone plans.  If they don't play ball, the game ends.  We'll see.

Greek Fire, Part 63

Elections yesterday in Greece and France portend serious trouble ahead for the euro.  First in Greece, conservative New Democracy has won the most seats in parliamentary elections, followed by centrist PASOK, and together they could form a government without leftist Syriza.  The problem is that PASOK won't play ball without Syriza in the fold.

...the Greek PASOK party of former PM G-Pap may have thrown a grenade into coalition discussion, following an announcement by Katerina Diamantopoulou that Pasok will not join into a coalition government with ND unless Syriza also joins said coalition. Which Syriza stated moments ago it would not do. The question then comes whether ND can form a government (150+ seats) with any of the other remaining parties (up to and including neo-nazi New Dawn or the communists... why is there no Pirate party in Greece?). The answer is most likely not, but not before some serious horse trading shows that the second Greek elections has achieved nothing, and the world now has to look forward to a 3rd Greek election round, some time in August...

In other words, still no government in Greece, as expected.   PASOK has correctly determined that if New Democracy and PASOK form a government now with Syriza, the two of them will be destroyed in the next elections as they take all the blame.  Syriza would win an outright majority in the following elections (which would be sooner rather than later ar more than 75% of Greece is now against austerity).  No Syriza to take their part of the blame, no government...and we're now stuck in the exact same boat as in May.  Nothing has changed.  There will be no Greek government.

In France, there's the opposite problem:  French parliamentary elections have given an outright majority of Francois Hollande's Socialists.

The Socialist bloc secured between 296 and 320 seats in the parliamentary election runoff, according to reliable projections from a partial vote count, comfortably more than the 289 needed for a majority in the 577-seat National Assembly.

The result means Hollande won't need to rely on the environmentalist Greens, projected to win 20 seats, or the Communist-dominated Left Front, likely to have just 10 deputies, to pass laws. The centre-left already controls the upper house of parliament, the Senate. 

Now things get interesting.  The French have completely rejected the center-right and now the country is dominated by the left.  We'll see what Hollande can do with it...and Germany is going to be pissed.

The Greek Fire continues scorching the world.

[UPDATE]  And I see Spain's interest rates have now breached the 7% danger zone this morning.  Hold on to your crapola, people.

Greek Fire, Part 62

The unquenchable Greek Fire is burning through Europe, and in Greece itself, panic buying and bank runs are now accelerating.

Greeks pulled their cash out of the banks and stocked up with food ahead of a cliffhanger election on Sunday that many citizens fear will result in the country being forced out of the euro.

Bankers said up to 800 million euros ($1 billion) were leaving major banks daily and retailers said some of the money was being used to buy pasta and canned goods in case of shortages, as fears of returning to the drachma were fanned by rumors that a radical leftist leader may win the election.

The last published opinion polls showed the conservative New Democracy party, which backs the 130-billion-euro ($160 billion) bailout that is keeping Greece afloat, running neck-and-neck with the leftist SYRIZA party, which wants to cancel the rescue deal.

SYRIZA says if they win, they're nullifying the bailout, which means an almost certain forced exit from the Euro, a series of bank holidays, and the return to the drachma at a massive loss...to anyone keeping cash in the bank, that is.  The smart people are getting their euros out now, which is causing something of a self-fufilling meltdown.

And at a billion a day and rising, things are getting downright scary in Europe now.  Here's a hint:  Greek banks don't have a lot of actual physical cash on hand (like any fractional reserve banking system), so those who wait, lose.

This is getting ugly and fast, folks.

Greek Fire, Part 61

Things are rapidly deteriorating in Europe now as result of the Spanish bailout doing nothing to restore confidence in the euro and failing miserably, as this Reuters story on "worst-case" EU preparations points out.

The discussions have taken place in conference calls over the past six weeks, as concerns have grown that a radical-left coalition, SYRIZA, may win the second election, increasing the risk that Greece could renege on its EU/IMF bailout and therefore move closer to abandoning the currency.

No decisions have been taken on the calls, but members of the Eurogroup Working Group, which consists of euro zone deputy finance ministers and heads of treasury departments, have discussed the options in some detail, the sources said.

As well as limiting cash withdrawals and imposing capital controls, they have discussed the possibility of suspending the Schengen agreement, which allows for visa-free travel among 26 countries, including most of the European Union.

"Contingency planning is underway for a scenario under which Greece leaves," one of the sources, who has been involved in the conference calls, said. "Limited cash withdrawals from ATMs and limited movement of capital have been considered and analyzed."

Another source confirmed the discussions, including that the suspension of Schengen was among the options raised.

"These are not political discussions, these are discussions among finance experts who need to be prepared for any eventuality," the second source said. "It is sensible planning, that is all, planning for the worst-case scenario."

And it really is sensible planning for the magnitude of what could happen very soon.   It's also all but guaranteeing a massive series of bank runs that will rapidly bring about chaos as a result.  The fact that the EU is seriously considering locking off member nation borders and bank withdrawals should clue everyone in that the time to get your money out in Greece and Spain and Italy is now, before these kick in.  Voila!  Instant self-fulfilling financial apocalypse, just add water.

This is a real problem, folks.  Strap in.  The Spanish bank bailout has failed, and Italy is next.

Greek Fire, Part 60

And we've reached the point where Spain has beaten Cyprus to the bailout window first as Madrid has asked the EU for something in the neighborhood of a hundred billion euros to solve their little bank implosion crisis.

Spain became the fourth euro member to seek a bailout since the start of the region’s debt crisis more than two years ago with a request for as much as 100 billion euros ($125 billion) to rescue its banks.

Prime Minister Mariano Rajoy, who as recently as May 28 said he wouldn’t seek a bailout, characterized the deal as a credit line for banks and an endorsement of his policies. He spoke to reporters today in Madrid before flying to Gdansk, Poland, for a soccer match between the national team and Italy.

Monday is going to be...ugly.  Ireland already wants to renegotiate its austerity-dependent bailout terms and Greece knows can push for that now too. 

If, as seems likely given the country’s size and therefore bargaining power, preferential terms are extended to the Spanish, the EU might find it has opened a Pandora’s box, beginning in Dublin.

A “European government source” told AFP that Ireland had highlighted “the need to ensure parity of the deal with Spain retroactively on its bailout".

AFP says a second European government source backs up this story. Apparently, Ireland intends to raise the issue during the next meeting of eurozone finance ministers on 21 June.

Ireland was known to be keen on renegotiating its bailout well before Spain agreed to request a loan, as a report in the Irish Examiner from June 5 suggests.

The even larger question is when Italy will follow Spain, considering everyone has been quietly propping up the Italians over the last five years, including the Spaniards.  When the Italians figure out they can now push for a deal like Spain got (and time would be of the essence in this case) it's going to get brutal.

And so, the Greek Fire has consumed Greece, Portugal and Ireland, and now Spain burns like a gasoline soaked torch in a napalm factory.  Four European countries down.  A whole lot of targets here could be next as the flames jump this latest Spanish firebreak, but if that next target is Rome as I suspect it will be,then the final act will be written.

We're into the beginning of the EU endgame now, folks.  Europe had its chance.  Spain's bailout means the last three years of half-measures, austerity, and musical chairs bank bailouts have now broken the back of the #5 economy in the region.  The difference with Spain is the size.  Greece is the #12 economy in Europe, Portugal #14, and Ireland #15.  Plenty of bigger countries that could help out with a bailout.  Not so with Spain.  The UK is #4.  Italy is #3.  When Italy goes, the game ends as they are too big for #2 France and #1 Germany to bail out by themselves.

So now we have not only a top 10 European country needing a bank bailout, but a top 5 one.  Now we're seeing the big boys fall.  And now things get deadly serious in Europe.

The Greek Fire now has taken a victim larger than the other three combined.  That's how bad this is, people.  Hold on to your crap.

Greek Fire, Part 59

And now things are Getting Real(tm) in Europe.

Finance ministers and central bank governors from the world’s leading economies agreed to coordinate their response to Europe’s financial crisis on a conference call that dealt with Spain and Greece.

Group of Seven officials said they will work together to help both euro-area countries place their public finances on a sustainable footing, Japanese Finance Minister Jun Azumi told reporters in Tokyo following the call today. Azumi said he urged European leaders to do more to address investors’ concerns about the region’s finances.

European representatives “said they will speed up their efforts to resolve those problems, which was encouraging to us,” Azumi said. “Japan is ready to provide support if there is anything we can do.” The officials didn’t discuss a possible Greek exit from the euro, he said.

Less than two weeks before a Group of 20 summit in Mexico that will take place as Greece holds its second round of elections in as many months, German Chancellor Angela Merkel is facing increasing pressure from colleagues inside and outside the 17-nation euro area to apply Europe’s biggest economy to do more to stem the crisis. With the impact spilling over into the global economy, Spain for the first time today appealed for external funding for its banking system. 

Yeah.  Suddenly things have gone from nebulous to "coordinated G-7 response needed."  Merkel looks like she's in over her head.  Spain is now asking for money outright.  Greece?  Well, who knows.  But the fire is now burning in the Fatherland.

Buckle up, kids.

Greek Fire, Part 58

What a difference a week makes when I said last Monday that the biggest risk of another bailout was Greece right now. It seems there's a late dark horse entry in the EU Bailout Race that might beat both Spain and Portugal to the line to join Ireland, Greece and Italy:  tiny Cyprus is reportedly very close to having to officially petition the EU for money before the end of the month.

Cyprus looks increasingly likely to have to ask for EU bailout money to help rescue its troubled banking sector, the island's Central Bank governor has said.

Panicos Demetriades said that Cyprus, which is part of the 17-country eurozone, is struggling to find €1.8 billion ($2.23 billion) to inject in the second-largest lender, Cyprus Popular Bank, by a June 30 deadline.

"Clearly, the closer you get to the deadline, the less unlikely (asking for EU bailout money) becomes," Demetriades told the Financial Times in an interview.

The bank is the most exposed to Greek debt and suffered huge losses after writing down the value of its Greek government bond holdings.

The government last month underwrote a €1.8 billion equity issue to help the bank raise capital from private investors, meaning it will have to put up the cash itself — an amount equal to a tenth of the island's entire economy — if the bank can't find the money.

However, state coffers are running dry because Cyprus is unable to borrow from international markets after two of the world's top three credit ratings agencies downgraded the island's creditworthiness to junk status. Cyprus is relying on a Russian loan just to pay its bills this year.

And yes, the little island that could ran headlong into the unquenchable flames of the Greek Fire and has been burned badly.   With a much smaller economy and only a few banks, Cyprus is facing a rocket sled to the bottom here and doesn't have a whole lot of options considering how deep the the country is in Greek debt...and Russian loan payments.  The country is all but junked in the bond ratings and can't get anyone but Putin's boys to loan them the cash they need.  An EU bailout HAS to be better terms then to have Igor and Vlad knocking at your door with a torque wrench.

It's been lost in the news with Greece all but falling apart right now, but if Cyprus makes the call, you'd better believe everyone will be watching to see what kind of deal they get with Spain and Portugal next in line.

We'll see.

Greek Fire, Part 57

And as the problems in Spain are accelerating, the biggest risk of collapse right now in Europe remains Greece.  Spain's economic disintegration would be far worse, but Greece's is far more likely, measured now in possibly weeks, not months before the Troika has to step in yet again or risk eurozone meltdown...and a global crisis.

Greece's public finances could collapse as early as next month, leaving salaries and pensions unpaid unless a stable government emerges from the June 17 election, according to Lucas Papademos, the technocrat prime minister who left office after this month's inconclusive vote.

Mr Papademos warned that conditions were deteriorating faster than expected with cash flow likely to turn negative in early June amid a sharp fall in tax revenues and a loosening of spending controls during two back-to-back election campaigns.

Mounting anxiety that Greece is headed for further political instability and a possible exit from the euro has prompted many Greeks to postpone making tax payments, and has also accelerated outflows of deposits from local banks.

Athens bankers estimate that more than €3bn of cash withdrawn since the May 6 election has been stashed in safe-deposit boxes and under mattresses in case the country is forced to readopt the drachma.

That's terrifying news.  The slow-motion bank runs in Greece are well underway, and people are simply putting off tax payments with no real government in power right now.  There's no reason to believe June's elections will break the deadlock, either.  None.  The Greek Fire is now burning through the country's cash on hand reserves.  It's not going to be able to pay employees within weeks.  That's only going to increase the bank runs and delay more tax payments.

I don't see a way out of this now other than Yet Another Bailout.  And this time, I think Germany will say "nein".

On the other hand, Spain is in real trouble too:

Why has this piece of bad news terrified global elites? In the first place because it demonstrates that in addition to huge costs in bailing out its banking sector the insolvent Spanish central government is going to get hit with massive bills from not only Catalonia but its other regional governments. It is going to have to go to the financial markets hat in hand to borrow more money than expected — this is going to drive interest rates up in Spain (and probably in Italy and Belgium) just at the time when Europe’s financial markets were trembling on the brink of yet another panic. And it means that Spain is likely to come to the EU much sooner than expected with a much bigger bailout request than anybody thought.

It's a race as to which country will need that bailout first.   But Spain's day joining the rest of the PIIGS (Portugal, Ireland, Italy and Greece) in the Bailout Club is now a guarantee, folks.

It's getting scary.  Real bad.  And the Greek Fire is now picking up speed.

Greek Fire, Part 56

And the Greeks fly too close to the firmament and get torched.  The good news is they've come up with the latest bailout payment and for now won't default.  The bad news is the government is no go, and that means more elections in a month and a huge question mark as to what happens next.

“The country is once again headed to elections in a few days under adverse conditions,” Evangelos Venizelos, the leader of the socialist Pasok party said. “The Greek people told us they didn’t want elections but a coalition government, that they want Greece in the euro.

I wouldn't bet a lot of money on that last part there.

Venizelos spoke after he and other party leaders met Papoulias today in Athens. A second election in less than two months threatens to extend the political gridlock that has left the country without a government since the last vote.

Greece’s political impasse means elections will probably be held next month, with polls showing that could boost the anti- bailout Syriza party to the top spot. The country may run out of money by early July.

The standoff has reignited concern the country will renege on pledges to cut spending as required by the terms of its two bailouts worth 240 billion euros ($306 billion) negotiated since May 2010, and, ultimately, leave the euro area. 

I wouldn't bet a lot of money on that last part there, either.   Greece is at this point facing the "Grexit" from the euro, and it's going to cause mass chaos in the rest of the eurozone.  Been talking about this for a long time now.  We're in the endgame now.

Last Call

The Kroog's possible worst-case endgame scenario for Greece/Spain/France doesn't exactly fill me with joy and happiness.  In fact, it scares the crap out of me.  The unquenchable Greek Fire, as I have been documenting here for years now, may finally consume the world economy.  It looks like this:

1. Greek euro exit, very possibly next month.

2. Huge withdrawals from Spanish and Italian banks, as depositors try to move their money to Germany.

3a. Maybe, just possibly, de facto controls, with banks forbidden to transfer deposits out of country and limits on cash withdrawals.

3b. Alternatively, or maybe in tandem, huge draws on ECB credit to keep the banks from collapsing.

4a. Germany has a choice. Accept huge indirect public claims on Italy and Spain, plus a drastic revision of strategy — basically, to give Spain in particular any hope you need both guarantees on its debt to hold borrowing costs down and a higher eurozone inflation target to make relative price adjustment possible; or:

4b. End of the euro.

And we’re talking about months, not years, for this to play out.

Once we hit step one there on this road, the rest falls apart very, very quickly.   Massive bank runs in Spain and Italy will not be isolated to just those two countries, but Ireland, Portugal, and who know how many others.  The EU would have to step in and the result would be trying to stand athwart a flash flood of debt yelling "What's all this then?"  It's unknown if Greece will even be able to make its May 15th bond payment.  If Greece misses it, all bets are off.

Mass European chaos at the height of the US election season, in the July-October timeframe.  Our economy would not exactly remain unscathed.  The largest factor in the elections may be completely out of the President's control.

By the way, as Digby points out, California's economy is larger than that of Spain.  They're facing a $16 billion shortfall and the answer there will almost certainly be more crippling austerity.

A sobering thought indeed.  And it all starts with Greece.

Greek Fire, Part 55

Meanwhile, European fears involving the Pain in Spain as the Greek Fire makes tapas out of the country's economy are beginning to take a toll on the US markets.  Dow's closed down 350 points in the last two days.

Spanish bonds tumbled as Economy Minister Luis de Guindos declined to rule out a rescue for the nation as 10 billion euros ($13 billion) of additional budget cuts failed to alleviate investor concerns. Analysts project that profits at non- financial S&P 500 companies grew last quarter at the slowest rate since 2009 as companies from McDonald’s Corp. to 3M Co. saw gains in the world’s largest economy eroded by a slump in Europe.

“The surge in Spanish yields puts the European debt crisis back on U.S. investors’ radar screens, front and center,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said in an e-mail today. Last week’s lower-than-forecast growth in U.S. payrolls “has eroded investor confidence about America’s self-sustaining ability to overcome headwinds from Europe.” 

More than even Mitt Romney, Europe's crumbling economy may be the President's biggest foe this fall.

The slump in Spanish bonds drove the difference in yield, or spread, with German 10-year bunds, the region’s benchmark government securities, to 4.33 percentage points, the most since November. The Italian 10-year yield rose 23 basis points to 5.69 percent, sending the spread over bunds to 4.04 percentage points, the most since Jan. 31 on a closing basis.

Spanish Prime Minister Mariano Rajoy yesterday unexpectedly announced a 10 billion-euro package of budget cuts in education and health, less than two weeks after unveiling the most austere budget in more than three decades. Rajoy is targeting basic public services for the first time since his election in December in a bid to convince investors he can bring order to the nation’s finances.

Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need additional capital if the economy weakens more than expected. 

And where, pray tell, does this capital come from?  Stay tuned as the Greek Fire continues to burn, baby, burn...

Greek Fire, Part 54

After burning low for most of March, April has seen the Greek Fire explode to become The Pain In Spain as Spanish bond spreads are rapidly approaching record numbers on crippling unemployment and a hollowed-out bank sector.

Spanish 10-year yields were 12 basis points higher at 5.84 percent, after rising around 30 bps on Wednesday. The yield differential over Bunds, at 411 bps, was its widest since late November, before the European Central Bank flooded the banking system with a trillion euros of three-year cash.

"There's been a lot of negative news on Spain over a sustained period of time but market sentiment was being buoyed by strong auction results until yesterday," said Rabobank rate strategist Lyn Graham-Taylor.

"It's quite a dangerous time and if the market starts to panic then the sky's the limit (for borrowing costs), although you may see some policy action come into play."

The Spanish/German yield spread was around 475 bps in November, even with the ECB buying bonds in the secondary market, a programme that has been mostly dormant this year.

ECB President Mario Draghi said on Wednesday that any talk of a withdrawal of the exceptional crisis-fighting measures would be premature.

Equivalent Italian yields, which are being dragged higher in tandem with Spain, were up 13 basis points at 5.52 percent. Shorter-dated paper in both countries underperformed.

"It looked like we were over the worst of it with the three-year (ECB funding operation) and Greece (debt restructuring) out of the way ... but now with the focus on Spain and Portugal we're looking at a different kettle of fish," a trader said.

Same kettle.  Same fish.  Only they stink worse now.  The Greek Fire just burns and burns, and while you might put it out temporarily in one EU country, it simply pops up and reignites in another one of the PIIGS countries like flaming whack-a-mole.  The hope that Europe had settled down and gotten things under control was just that: hope.

I said six weeks ago agreeing with Felix Salmon that the EU had bought itself several months.  It looks like the EU won't even get two months at this rate before having to intervene in Spain, Italy, and Portugal.  Only this time, there won't be any money to do it with.

European debt crisis?  Never went away, folks.  It's still the biggest economic story of 2012 and the economy here depends entirely on what happens in the EU over the next few weeks.

Strap in.  Gonna get ugly.