Greece Is Still Trapped, Act Two

The Greek government has released budget performance numbers for February that show a remarkable improvement in revenue collection. Although it’s always wise to wait for more than a single month of data before changing one’s mind, I’m withdrawing my prediction that the government’s deal with the rest of Europe won’t stick.

For all the sound and fury, it turns out the new government has pretty quickly settled down to accepting that keeping the euro means keeping austerity.

I wrote earlier that revenues were an alarming 20% below target in January after an 11% shortfall in December. If the new government didn’t fix those revenue shortfalls immediately, the tentative deal it struck last month with other Euro Area governments was bound to fall apart. A collapse of the deal would lead quickly to a banking crisis in which Greeks would lose their bank deposits.

Well, it’s only one month of data, but the difference is dramatic. Overall budget revenues were a mere €28m or 0.7% short of target in February. That’s actually better than the average performance in January to November of last year.

Even more telling, state budget expenditures in February were €828m short of budget. That’s an ad hoc sequester of 15% of the month’s budgeted spending, or 19% of non-interest spending. Obviously the government was straining to meet its debt payments after revenues had fallen short by €1.8b during the sort-of interregnum of December and January. The big expenditure shortfall in February shows in the most direct way possible that the new government is willing to impose austerity to avoid default.

Here’s the data, from the finance ministry:

 

The Bank of Greece also released some data for February that shows that Greek banks remained under severe stress in February, but not as much as in January, when Greek banks lost €31b of funding, including €17b of foreign interbank credit and €13b of deposits. Greek banks appear to have lost somewhere between €16b and €18b of funding in February, which is still very bad, but not as extremely bad as in January.

The data released so far for February is only indirect and relies on two things that typically happen when people pull money out of the Greek banking system. First, the Bank of Greece lends funds to Greek banks to allow them to redeem the private funding. Second, the Bank of Greece incurs a liability to the Eurosystem. These are so-called “Target” liabilities for money wired out to elsewhere in the Euro Area, and for deposits paid out in banknotes, liabilities for over-quota issuance of banknotes into circulation. Here’s the data and some more from the Bank of Greece:

Bank of Greece lending to Greek banks grew by €31.4b euros in January, while Bank of Greece liabilities to the Eurosystem grew by €32.1b – both fairly closely mirroring the €31b of private funding that Greek banks lost that month. In February Bank of Greece lending to Greek banks grew by about €16.8b, while Bank of Greece liabilities to the Eurozone grew by €17.8b. [UPDATE: Greek commercial banks’ loss of private funding in February turned out to be €18.8b, including €9.4b of deposits and €9.4b of international interbank credit.]

Note that the line I label “emergency liquidity assistance and sundry” is called in Bank of Greece data “other claims on euro area credit institutions denominated in euro.” That’s because emergency liquidity assistance is technically secret, so it’s hidden, albeit not very well, in a sundry category. Typically there are between €0.5b and €2b of items in that category that aren’t ELA. The increase in BoG lending to Greeek banks in February is thus an estimate. The exact increase in January is known from another source.

The data also shows how powerful the move was by the European Central Bank’s governing council on Feb. 5 to make Greek government debt and government-guaranteed debt ineligible for collateral for ECB-backed refinancing. The decision effectively withdrew €43.6b of funding from Greek banks. In compensation the ECB council reportedly raised its cap on the total amount of ELA the Bank of Greece is allowed to issue, but only by €9.5b.

It appears from this data that the stress was already lessening by the end of February. On Feb. 18, the ECB reportedly increased the ELA cap from €65b to €68.3b. The ECB wouldn’t have done that unless the BoG was close to breaching the €65b cap. But as of the end of February, ELA appears to have been still right around €65b. Apparently, Greek banks didn’t lose much funding between Feb. 18 and the end of the month.

Greek banks have continued to lose funding in March but at a decelerating pace, judging from the ECB’s latest increases to the ELA cap, to €68.8b on March 5 and €69.4b on March 12, according to Bloomberg.

I’ll be keeping an eye on the story, but for it’s looking like the Greece story is settling down. As I wrote back on Jan. 28: “The harsh truth is, Greece is boxed in. Trapped as trapped can be. So Greeks elected the only people who claimed to know a way out, however radical. But what can the Tsipras government actually do? I suppose it could make a show of throwing itself against the walls that surround it on every side. That might be what Greek voters are expecting.”

But there wasn’t even much show. The bottom line is that Greeks want to stay in the euro more than they want to reverse austerity, and Tsipras has proved to be adept enough of a politician to understand that. If you need confirmation that Tsipras has abandoned the leftist cause, here’s the Socialist Worker.

Here’s How Nemtsov’s Killers Could Be Caught

Some grainy, partly obstructed footage of Boris Nemtsov’s assassination has been leaked to the Russian television channel TV Center which bravely broadcast it. It doesn’t show a lot, but it does show enough to establish some of the basics of what happened. Enough is visible that it prevents Putin from getting away with a completely concocted version of events. For example police publicized that they were looking for a white car, but the car seen in the video picking up the assassin and driving off is dark.

The murder happened while Nemtsov and his girlfriend Anna Duritska were walking south from Red Square towards Balchug Island, which lies in the middle of the Moskva River. The footage appears to be taken from a camera mounted on the outside of an upper floor of the Balchug Kempinski Hotel.

Two blurry figures that must be Nemtsov and Duritska can be seen walking on the west sidewalk of the Bolshoy Moskvoretsky Bridge. Some kind of municipal utility vehicle slowly catches up to them as they cross behind a large light pole, and the murder apparently happens right at the moment it pulls alongside them. Two seconds later a figure emerges from behind the truck and walks out into the middle of the road, gets in the passenger door of a car that was driving up from the same direction, and they drive away.

The utility truck stops as Duritska kneels over Nemtsov. Then she walks over to the truck driver apparently to ask for help. Other people arrive, the truck driver leaves, Duritska and two others walk around the area together, and finally a police car arrives.

There’s a lot of speculation going around about the role of the truck and how the assassin arrived on the scene without being visible. Some have assumed everything was carefully coordinated to hide the killing from the camera, but this was a very far-off camera. My guess is the assassin was standing near the light pole where Nemtsov was shot down, invisible to the camera, and the truck was not involved.

But there’s a way we could find out for certain, if anybody has the guts to do it. There were several cameras located much nearer to the scene where Nemtsov was gunned down, on at least two nearby lamp posts. Everything possible needs to be done to make the footage they captured public.

One, pictured at the top of this article, has a large traffic camera (click for Google street view) pointing north towards the scene of the crime from about 120 meters to the south. Its view of the killing was likely blocked by the truck, but it probably recorded the assassin arriving at the scene of the crime. Unless it was broken or turned off it should have better images of the assassin stepping into the getaway car, and it should have excellent footage of the getaway car driving directly towards and under it.

The other post is about 60 meters north of the crime scene and has this set of cameras on it (click for Google street view):

Which tells you something about the nature of the killers. It seems very unlikely that they carefully planned to hide from a distant camera but didn’t mind being caught from shorter range on a big traffic camera and probably at least one of these cameras. Duritska is reportedly being held against her will in an undisclosed location, and Ukrainian officials pressing for her release probably won't get anywhere without US backing.

It surely won’t be easy to find that traffic camera footage. I understand of course that most Russians are either understandably too scared of Putin to act against him or stupidly glad that Putin is killing Ukrainians and Russian opposition leaders. Anyone who really cares about Russia’s future should be doing their utmost to make that footage public and get Duritska out of Russia.

Greek Banks Were Closer to the Cliff Than We Knew

The Bank of Greece has published its monthly report on the financial position of Greek commercial banks as of the end of January, and it turns out their situation was much worse than we knew.

Greek banks lost €31b of funding during January, including €12.8b of deposits and €17b of foreign interbank credit. It was all replaced with freshly created euros lent into existence to Greek banks by the Greek national central bank. Bank of Greece credit to commercial banks shot up from €56b at the end of December to €87.5b at the end of January. As I wrote back on Feb. 8, the professional analysts who follow Greece were estimating at the time that BoG credit to banks was probably up to €70b-€75b.

What this means is that the Bank of Greece was rapidly approaching the limits on its lending to Greek banks, and thus Greek banks were rapidly running out of cash before Yanis Varoufakis met Mario Draghi in Frankfurt on Feb. 4. Draghi obviously knew that, and his reaction and that of other members of the European Central Bank Governing Council that he conference-called with after Varoufakis left now appears to have been very harsh indeed.

The council lowered the BoG’s lending limits, giving it very little room to continue keeping Greek banks liquid. This strongly confirms my interpretation that Draghi did not like what he heard in that meeting at all, and he and other European central bank governors felt it was their duty to limit the EU’s potential losses from what then seemed a probably imminent Greek default.

The council removed the BoG’s ability to accept Greek government bonds or government-guaranteed assets as collateral for standard ECB-backed lending to Greek banks, and then set a €59.5b limit on BoG emergency lending to Greek banks. By doing so, the ECB council essentially capped BoG lending at somewhere just under €100b, because Greek banks have less than €40b of other ECB-eligible collateral – mostly €37.7b of European Financial Stability Facility bonds received from their EU-financed bailout.

Moreover, some portion of those EFSF bonds were already pledged for private credit, which effectively lowered the sub-€100b cap further. Unwinding private secured loans to borrow from the BoG wouldn’t have generated any extra cash to pay fleeing depositors and interbank creditors.

And BoG had already lent €87.5b to Greek banks at the end of January. The ECB council seems to have given the BoG hardly any additional lending allowance, knowing full well the limits it was imposing meant the Greek banking system would run out of cash in about a week.

Only after the Greek government began to cave in and accept that it would have to endure more troika supervision of its fiscal policies did the ECB relent and make two small hikes to the limit, by €5.5b on Feb. 12 and another €3.3b on Feb. 18. The ECB was keeping Greece on the shortest leash possible by keeping its banks right on the edge of running out of cash the entire time the extension of Greece’s adjustment program was being negotiated.

Here are the gory details of Greek banks’ loss of funding in January. Besides the big headline numbers there are some intriguing details, such as the new deposits Greek banks attracted from outside Greece. Something tells me those were not given on especially favorable terms.

And here’s a table showing how the Eurosystem’s exposure to the Bank of Greece exploded in December and January as a result of the run on Greek banks, drawn from the BoG’s advance monthly balance sheet. These are the Bank of Greece’s liabilities for all of the euros it has put into circulation, either as banknotes or as central bank deposits. If Greece were to exit the euro and the Bank of Greece were to take its assets with it and deny any liabilities to the EU, the rest of the Eurosystem would have to back the euros the BoG has issued by injecting new assets.

Target liabilities are essentially euros created as reserve deposits by the Bank of Greece that left by interbank transfer to the rest of the Euro Area. Deposit liabilities are euros created as reserve deposits still in the possession of Greek banks. Liabilities for currency in circulation are the BoG’s proportional share of the Eurosystem’s liabilities to holders of currency in circulation. Liabilities for over-quota currency are the BoG’s liabilities to the Eurosystem for currency the BoG has issued into circulation in excess of its proportional share.

The latter figure won’t be reported till the BoG publishes a more detailed monthly balance sheet some weeks from now, but it can be estimated from the change in a catch-all “remaining liabilities” category in the advance data. The numbers in red italics are estimates, but probably very close to accurate.