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.