And suddenly the mood has changed in Europe about
Greece and as a matter of fact, in yesterday’s meeting in Brussels with EU
leaders, Greece found an unexpected support (except the satellites of Germany,
being, Latvia, Netherlands, etc...). The reason that Greece found such support
was due to its newest proposal memorandum, which was characterized by the
majority of the EU members, as “a good basis to continue talks”.
Greece received support in the Eurogroup meeting from many
countries, and criticism from a minority of counties was rebutted saying that
Greece has already done a lot to bridge the gap with what the creditors demand.
From what I hear from the Greek press, the measures are going to be hard,
especially for corporations, partnerships, and proprietorships, since the
corporate tax rate will be increased. I also hear that there will be a three
level of sales tax, with the controversial issue being that of the Greek
Islands. As it stands now, the Greek Islands have a special sales tax rate.
With the new proposal (as I understand from reports), the Greek administration
is proposing to abolish this (and bring it up to 23%), and as a counterbalance measure,
introduce tax free income up to 12,000 euros.
However, as we know, the Greek government is a coalition,
with the other party that has 13 deputies, and yesterday, its leader said that
he would not vote the agreement if it contains the abolishment of the special
tax rate, even if the government falls!! Another additional headache for the
Greek PM is from within his own party. Many are already talking about not
voting the agreement. Those are the same dangerous ignorant deputies that have
been advocating all along that Greece should break ranks with the EU, and
return to the drachma.
From the press conference after yesterday’s Eurogroup
meeting, the EU requested that the measures proposed by the Greek government,
should first pass the Greek parliament, and then an agreement will be reached
(which may be an extension of the current memorandum). The financing that
Greece will receive will go back to the creditors, like the IMF, so that Greece
may meet its obligations, and thus not default.
It should be pointed out that after the optimistic
news came out yesterday, the markets reacted positively. There was an increase
in the Athens Stock Exchange for two days, especially banking stocks. The DAX
(German Stock Exchange) also rose, as did other European markets. As far as the
bond market, the yields took a dive. Spanish, Portuguese and Italian bonds, the
most volatile, dropped amid the news. The yield on the 10 year Greek bond lost
55 basis points, to 10.66%, the 5 year yield Greek bond lost 118 basis points
(1.18%) to close at 15.27%, while the 3 year closed to 21.49% losing 214 basis points.
The 10 year yield of the Italian bond closed at 2.07%,
the Spanish at 2.03%, and the Portuguese at 2.66%, all maturing in 10 years.
The European Central Bank is continuing to provide liquidity to the Greek Banking System, despite the continuous cash outflow by depositors due to the uncertainty and risk of exiting the euro that this government has brought, with its so called negotiating ability five months now. The Greek economy has completely dried from cash, as are businesses, and with the pending agreement, more money will be taking out of the circular flow system of the economy, which will bring more recession , unless with the agreement, comes along an economic stimulus exclusively for the economy, and a legal binding agreement on the debt restructuring.
Bill T. Alexandratos
Billalex60@gmail.com
