STOCK MARKET WATCH -- Tuesday, 23 June 2015

[Demeter]

14. Short Greece Proposal Update: Greece Folds naked capitalism

http://www.nakedcapitalism.com/2015/06/short-greece-proposal-update.html

...Note contrary to earlier media reports, it technically does not lower pensions payments but does reduce pension spending by requiring higher contributions, including payments from retirees themselves. As the Guardian’s Athens reporter, Helen Smith, notes:

……there’s a hefty increase in revenues from VAT over the next 18 months.

Greece has also accepted that pension must be reformed, and is planning a hike in pension contributions and an increase in health contributions from retirees. However, it appears that actual pension rates won’t be cut, allowing Athens to argue it has kept to its red line.

Another quick verdict is that “pensions are almost spared“. And while European leaders are urging their peers to consummate a deal, it’s not clear these pension moves will be enough to satisfy countries like Slovaka, which have said they can’t stomach financing Greece’s more generous pensions. One rebellious country could probably be shamed into line, but we have yet to hear of the reactions from the real hardliners like Finland and Spain, since the summit has just begun.

However, regardless of what you think of the pension finesse, the Syriza government has agreed to continue with austerity. A 1% primary surplus for 2015, which was the creditors’ target that Greece accepted the weekened before last, contrasted with the IMF estimated that primary surplus for 2015 was going to be as low as negative 1.5% roughly a month ago, represents a big hairs shirt for Greek citizens. Even though recent Greek budget releases show the primary surplus above the target for the first five months, if you look into the details of how that was achieved, it was through payment deferrals and cuts. Those payment deferrals, meaning non-payments to important vendors like pharmaceutical suppliers will need to be made more current, and other reserves that have been run down to make payments such as the borrowings from the IMF reserves, will also need to be made up at some point. That means that the actual impact of meeting the target will be greater than the 1% when you allow for where it would be if Greece were as current as it has been whether new government came in, as opposed to stretching payables to such and extreme degree.

If you take the IMF estimate of a 1.5% primary deficit as a decent representation of where things stand if the Greek government had been paying bills on a normal bassi, that means the amount of austerity being inflicted this year is close to 2.5% of GDP. That is essentially the same increase as the pre-negotiation target of 3.0% of GDP relative to Greece having primary surpluses before the negotiations began Recall that the February Eurogroup memo that Greece signed, which said that the primary surplus target would be adjusted in light of current conditions, that is arguably what happened, that the target was adjusted to produce the same degree of “fiscal consolidation” and not actual relief.

And not only is this year’s level harsh in an already severely depressed economy but 2018 and later target of 3.5% is simply draconian.

Although the Greek government will try to spin otherwise, the new coalition has agreed to continued austerity. They are now just hashing out implementation details...

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