The Greek economy is running short of cash so this
past week what was a possibility became a law. The Greek administration passed a
law which requires all public organizations, Hospitals, city governments, and
pension funds to turn over their cash and cash equivalents from the commercial
banks to the Bank of Greece, the former central bank. The organizations will
earn an interest rate of 2.7%, more than what they earned up to now, and for a
period of days in the form of repos. The law came in the form of legislative
act, which brought huge protests from the opposition parties. The method was critiqued
when the current administration was opposition majority before the election of
January 2015.
Repurchase
agreements are money market instruments used to raise short term capital. This
issue came about when the finance minister for the General Accounting Office
admitted last week that the government is short of 400 million euros to pay
pensions and salaries. Also this past week at the eurogroup conference, all
finance ministers were against the Greek finance minister. They are accusing
him of unwilling to negotiate, and that Greece has breached the agreement of
February 20th. In that eurogroup meeting, Greece had agreed to go on
with several reforms, like reform the value added tax, privatizations, even
cuts in supplementary pensions.
No compromise was reached, so that Greece can start
receiving payments, the government is desperately seeking cash, although it has
met fully, thus far, its obligations to its creditors. And I may add here that
despite the negative climate and bombardment Greece has, and continuous to receive
from the foreign press. Because the administration is considering imperative
that a chaos has emerged between the finance minister and his counterparts of
the Eurozone, it went ahead and replaced as head of the negotiating team the
finance minister. This decision had an effect on the yield of Greek bonds. The
two year fell 100 basis points, and the ten year lost 50 basis points to
12.20%.
Bill T. Alexandratos
