Greeks Back Tsipras’ All-In Bet

Tsipras has won his referendum, with 62.5% turnout and 61.3% of votes for “no.”

In other words, the Greek nation has thrown itself  behind Tsipras’ all-in bet that European leaders will fold and bow to his demand to roll over Greece’s debts on looser terms. Even though Greeks are holding the weakest of all possible hands.

Greeks simply don’t have much in the way of credible threats to hold over the rest of Europe, especially since markets are reacting fairly calmly. The only potent card they have, if Tsipras is willing to try to force them to play it, is their willingness to endure what could be widespread suffering, if he carries out his threat to let Greek banks run out of euros and not introduce any new currency.

The bet is to the ECB Council

Play now goes to the European Central Bank’s governing council, which will hold a conference call on Monday to decide how to react. Just before that, the ECB chairman, Mario Draghi, will hold a conference call with top EU political leaders.

Hanging over the council’s decision is one powerful fact and another powerful inevitability. The fact is that Greece defaulted on June 30 to the IMF. Due to cross-default clauses, Greece has since also been declared in default on most of its debts to the EU by the EU’s bail-out fund, the European Financial Stability Facility.

The inevitability is that Greece will default on €2.2b of principal and interest due to the ECB and another €1.4b of principal and interest due to Euro Area national central banks. The €3.6b of payments are due July 20.

The council has three options, but realistically, only two. In theory, the ECB council has the power to inject new liquidity into Greek banks and allow them to open and start paying out on deposits normally. The council would have to vote to increase the cap on Greece’s use of Emergency Liquidity Assistance, a way that EA NCBs are allowed in crisis situations to create and lend euros to their banks against substandard collateral.

Such ELA loans are backed by the NCB’s own guarantee to the ECB. Which could be a little difficult for the ECB council to justify accepting just now, given that an NCB’s guarantee is only as good as that of the government behind it, and the Greek government is in default to another EU institution.

The second option, and the nicest the ECB council could realistically be to Greece in this situation, would be to maintain the cap on Greece’s use of ELA at its present level of €89b. That would allow Greek banks to continue to disburse €50 or €60 a day to depositors for a little while longer. Nobody outside the Greek government and banks knows exactly how much cash and unused ELA allowance Greece has left at the current pace of withdrawals, but I think not more than a few weeks worth. See here.

The third option, which ECB councilors will likely feel legally compelled to take despite how harsh it is, would cancel most of Greece’s ELA allowance except the €2b that all NCBs are normally permitted. According to an ECB summary of the secret rules governing ELA, any NCB with an ELA allowance above €2b automatically loses it unless re-confirmed by a council majority “within a pre-specified short period of time.”

The council has lately been holding ELA re-confirmation votes for Greece about once a week, most recently on June 28, after Tsipras called the referendum but before he missed the IMF payment. My guess is that without a positive vote, the €89b ELA allowance would expire sometime this week.

Losing the ELA allowance would mean Greek banks would run out of cash faster. They would probably stop reloading ATMs the next day. It would amount to an order from the ECB to the Bank of Greece (the national central bank) to immediately recall about €87b of loans to Greek banks. The BoG would probably be obliged to seize Greek banks’ deposits at the BoG, without which they would have no way of paying each other electronically. The BoG might even be obliged to come for the banknotes in their vaults and cash drawers.

The argument for taking the nice option will be to leave a door open to Tsipras to make his new offer, and that Monday is simply too soon. But I don’t sense that European leaders are really expect much serious from him, or that they’re really all that eager to see what he comes up with. The argument for taking the harsh option will be that with the Greek government in default to the EU, the ECB can’t accept the guarantees of the Greek national central bank.

The council is very different from other EU bodies, as it decides by simple majority, and small countries carry much more weight. The ECB council is made up mainly of the 19 EA NCB chairmen, plus six EU-appointed ECB governors, including Draghi.

That means Germany lacks the veto power at the ECB that it has over most EU bodies, which is good for Tsipras. But it also means the former communist European countries carry a lot of weight at the ECB, which is very bad for Tsipras. The council tends to follow Draghi, and if EU political leaders weigh in strongly one way or another, that would likely carry their vote.

The Greek nation volunteers to be taken hostage

Tsipras knew what he was getting into. I’m pretty sure his voters did not know, and it will not be a pleasant awakening.

The Greek nation has essentially volunteered to be Tsipras’ hostage as he heads into his final show-down with European leaders. Tsipras says he is determined not to issue any new currency. But his government and banking system are very near to running completely out of euros. If he continues to resist issuing a new currency, and Europe gives him no fresh supply of euros, the economy will collapse into deep crisis.

The first big problem for Tsipras is that he has made European leaders hate him. They want very much to do him personally no favors.

His second big problem is that the EU strictly adheres to the rule of law, and he is in the wrong side of it. His government is in default to the EU and will be soon to the ECB and EA NCBs. That greatly limits European leaders’ options.

And the third big problem for Tsipras is, when the money runs out and the cupboards run bare, Greeks will not stay behind him. Despite the convincing vote, there will soon be mass protests against him. If we take Tsipras at his word that he will not issue any new currency, then when euros run out, Greeks will literally starve.

Tsipras will probably back down long before it gets that far, probably by introducing IOUs or some other kind of pseudo-euro and denying its a new currency. I don’t rule out that he could ultimately cave in and accept Europe’s conditions for a roll-over of Greek debts.

But the Greek people have committed themselves to a very dangerous bet. Tsipras and his game-theory professor finance minister, Yanis Varoufakis, could be planning to deliberately make the Greek people suffer in order to pressure the EU to back down. But the pain would really be all Tsipras’ doing, and it wouldn’t take his hostages long to figure that out.

[UPDATE: The ECB council chose the nicer of its two realistic options, and kept Greece’s ELA cap at the same level it had been for about two weeks, which Bloomberg reported a bit more precisely at €88.6b. Haircuts on collateral were increased, but not by so much that Greek banks can’t make up the gap with other collateral. All in all a very mild reaction to Greece having defaulted to the EU and IMF. There will be lots of meetings ahead, but probably the most important upcoming events are 1) the inevitable default of Greece on €3.6b owed to the ECB and EA NCBs on July 20, 2) the ECB council’s reaction, which could be immediate or after a likely grace period expires, 3) the inevitable exhaustion of Greek banks’ euro supply, anytime within a few weeks and 4) probably about the same time as that, the introduction of new money, probably some kind of pseudo-euro, backed only by Greece.]

Why Greeks Will Be Voting Their Birthdates

The Greek polling agency Public Issue has published the results of a poll that breaks down Greeks’ voting intentions by age group, and the results are sobering.

Whichever side of the debate you’re on, you’d probably like to believe that this is a vote about policy and ideology. A “no” majority would throw off the strictures of euro membership and give a mandate to the leftist prime minister, Alexis Tsipras, to steer economic policy independently. A “yes” vote would sack Tsipras, submit to European policy oversight and probably move policy back towards centrism.

In a country and continent where leftism is conservative and reforms are driven by free market ideology, one might expect to see young Greeks leaning right and older Greeks clinging to leftist tradition. After all, the “red-line” issue over which Tsipras walked out of talks with the Troika last week was their demand to cut pension spending.

But it’s the other way round. The younger you are, the more likely you want to defy Europe and support Tsipras. The older you are, the more likely you want to sack Tsipras and cling to Europe.

Obviously, ideology is not the crux of this vote. This is between hanging on to what you have, and risking it all in hopes of finding a better way.

Taking the Argentina comparison too far into the future

Lars Christensen has a post that has received a lot of attention predicting a robust recovery if Greece votes  “no” and introduces a new floating currency. In it, he compares Greece today to Argentina in 2001, as I have done, and shows that Argentina bounced back strongly in the following years.

The biggest problem with that argument, as Lorcan Roche Kelly points out to Christensen here, is that Argentina’s economy is driven by commodities exports. Argentina’s crash in 2001 and boom over the next several years were obviously driven by the commodities cycle.

What then could we expect in Greece after a “no” vote? Initially, a big mess. Tsipras would have a strong mandate, but on the basis of the false claims he is making that he will still be able to secure the support from Europe he needs to preserve the euro value of Greek bank deposits. After a “no” vote, that support would not come, and those deposits would be devalued.

Tsipras’ policy-making is also likely to turn very bad. I think he would most likely introduce some kind of pseudo-euro with a dual exchange rate, with one-to-one convertibility for the government and select importers and a value far less than that for everybody else. I think his distribution of pseudo-euros would be very politicized, aimed mainly at defending himself from the mass protests that would inevitably come against him.

On the positive side, I don’t think Tsipras would last long. But I suspect that after him would follow a long period of political and economic turmoil, and policy could turn even worse before it turned better.

So the scenario that Christensen is touting, of Greece with a new floating currency and, by implication, no sharp deterioration of other economic policies, isn’t likely to happen anytime soon. It’s one of many possible places Greece might eventually get to after the turmoil that would follow a “no” vote.

Devaluation’s Winners and Losers

Even after all the decline in incomes and asset prices of the past several years, Greek assets and labor are still somewhat overvalued relative to where they would need to be to spur enough investment to re-employ all of Greece’s recently unemployed.

No doubt a currency devaluation would be the easiest way to solve that problem. A floating currency would indeed be better for Greece’s GDP, over the long run, than euro membership.

But a devaluation is what it says it is. Your income shrinks and you lose wealth, at least in terms of foreign goods and assets. The hope is that national income and wealth will grow back, over time. But that rebuilding of incomes and wealth is not symmetrical.

Real GDP tends to bounce back quickly after a devaluation, since real GDP counts only domestic products. Real wealth takes longer to recover, especially for countries like Greece that import a large portion of what they consume.

And there are all kinds of other asymmetries. There are winners and losers.

I personally don’t see anything to gain from endorsing Tsipras, even for young people. I think the result would be not at all what his supporters are imagining. But I can understand a young patriot wanting to throw off European strictures, believing that in the long run Greece will find a better way. For young people there’s a good enough chance that policy will turn out okay and their long-term income-earning prospects will be better outside the euro than they would have been inside it.

For older people that possibility isn’t there. They have far more savings to devalue, and usually the kind of savings that don’t rebuild, such as pensions. And they will be far more dependent on those savings for their livelihood.

IMF Greece Update: Zero 2014 primary surplus, €5b of new arrears

Back in February, I published a very wonky blog post, which to my surprise has proven to be my most popular post by far: Greece’s Primary Surplus Was Smaller Than Reported. In it I explained why Greek data purporting to show the government ran a primary surplus of 1% of GDP in 2014 was phony. The data wrongly counted privatization revenues and refunds of interest previously paid as primary income. Those were worth a combined 0.5% of GDP.

I also explained that the Greek data referred only to the state budget (the core central government) and can’t be directly compared to the primary surplus benchmark used by Greece’s creditors, which refers to the general government (the whole public sector, except state-owned businesses).

And I explained that although Greece publishes general government budget results that can be used to estimate its primary surplus (I came up with 0.7% of GDP for 2014), the EU and IMF apply very different accounting rules from Greece when they calculate the primary surplus of a country. So we wouldn’t know what Greece’s 2014 primary surplus really was by EU or IMF standards until one of them counted and published it.

Today that happened (see page 19), and here’s the answer: Zero. Greece had no primary surplus at all in 2014, by the IMF’s calculation.

That came after a 1% of GDP primary surplus in 2013, by the IMF’s count. So the Greek primary surplus actually deteriorated in 2014, when according to Greece’s adjustment program, it was supposed to improve, to 1.5% of GDP.

Another €5b of arrears

I’m not really surprised, nor am I by this: according to the report, the Greek government has run up an additional “about €5b” of arrears since the IMF’s previous review, published in May 2014. That underscores the severity of what I have been calling “ad hoc austerity”: the ostensibly temporary withholding of budgeted expenditures, in order conserve scarce cash.

The IMF doesn’t give any details of exactly how or when “about €5b” of arrears piled up since May 2014, but probably most of it built up since February. The report includes this interesting comment: “Cross-country experience suggests that unreported arrears may be significant under tight financing conditions because agencies may not report all invoices received in such a constrained budgetary situation. This would impart an upside risk to the estimate.”

Here’s an update of Greece’s state budget expenditures. It shows how the core central government spent €2.6b less than it was budgeted to spend in February through May. That’s almost 16% of budgeted expenditures other than interest that weren’t paid, and more than 4% of the period’s GDP. It doesn’t include local governments and some central government bodies.

Withholding 4% of GDP worth of budgeted expenditures is a whole lot harsher than anything the Troika of Greece’s official creditors asked for, even at the beginning of talks in February. If all of the roughly €5b of new arrears were run up in February-June, that would be more than 6.5% of that period’s GDP.

And now, with access to euro banknotes restricted and many businesses accepting nothing else, austerity just got a great deal harsher still. I have trouble understanding how limiting bank deposit withdrawals to €60 per day can be sold to the public as throwing off austerity. I guess we’ll see soon enough in Sunday’s poll.

But Tsipras wasn’t bad at collecting taxes

What puzzles me most about Tsipras’ move is that he put such effort into avoiding default all the way through the end of June. As the next table shows, his government’s tax-collection performance in February through April was actually right on target and significantly better than the Samaras administration’s average last year.



Even after poor performance in May – possibly related to taxpayers being on the wrong side of those arrears – the four-month average was still not too shabby, by Greece standards.

That €50b is proposed new lending, not debt relief  

This, by the way, is the same IMF report that’s being widely misreported in the news as calling for €50b of debt relief for Greece. Actually the report says Greece would borrow €50.2b more from the EU and IMF over the next three years under the Troika’s new bailout offer.

Of that, €29.8b would merely roll over maturing debts. The other €20.4b plus the government’s projected €11.4b of primary surpluses and privatization proceeds would pay for €13b of interest payments (net of refunds), clear €7b of arrears, rebuild €7.7b of run-down public sector cash balances, and put €5.9b into the government’s bank bailout fund (see page 7, table 1).

Tsipras Shoves All In

And so, months after I abandoned my prediction that Alexis Tsipras would lead Greece into an international default, he has gone and done just that.

Far from humbly accepting that Greeks want to keep the euro more than they want to reverse austerity, as it appeared to me in March that he had, Tsipras is making the most wildly high-risk bet he could possibly make. In poker terms, Tsipras has just pushed all his chips into the pot and dared his opponent to call – while holding the worst of all possible poker hands. Unless he’s extremely lucky, he’s going to crash out, and probably never play a major tourney again.

The play now goes to the people of Greece, who in this game can either confirm or reject his bet. He’s campaigning hard for a “no” vote against accepting the terms that have been offered to roll over Greece’s debts, and doing his best to persuade Greeks that if they support him, European leaders will fold and improve their terms.

If the vote goes against him, then Tsipras is out, and some new, more pro-European government will probably replace him, probably after another general election. But he will very likely win, mainly because he has given Greeks so little time to live and think through the real implications of a “no” vote.

Greeks are getting a taste of it this week, and it’s not at all pleasant. Sending money abroad is banned. Withdrawals of banknotes from bank accounts are limited to €60 a day, and practically available only to those who line up early at ATMs. Pensioners who wanted their pensions in banknotes were offered one partial payment of €120 this week after waiting in long, angry lines.

Some importers can still make payments abroad, if they receive approval from a newly established government committee. And Greeks can still make bank-to-bank payments among themselves, with payment cards or online. But Greek bank deposit balances are obviously already worth less than face value.

I haven’t yet seen anyone report a market exchange rate of cash euro banknotes for bank deposit balances, but I’m sure it would be hard to get more than 50 cents on the euro. Big businesses are facing a very tough decision whether to continue accepting payment cards and bank transfers, and most small businesses have already stopped.

And even this situation is too good to last. Greece can’t afford to keep up those €60 and €120 payments. Soon the euro supply in Greece will dry up, and the government will only be able to offer some kind of new notes, which will probably be nominally valued in euros but worth less than half their face value.

In other words, Greeks’ real spending power just fell off a cliff, and it’s going to roll further downhill from here.

Grexit: officially impossible, de facto all too likely

But many people will gladly suffer a week of hardship for what they see as a patriotic stand-off, and many will be willing to risk suffering more and longer.

If Greeks support him, Tsipras will continue to steadfastly deny that he’s quitting the euro, and technically, he won’t be. Despite what you might have read, there is in fact no way whatsoever to formally expel Greece from either the Euro Area or the EU.

To kick Greece out of the EU or euro, the EU would first have to amend EU treaties to allow it. That would be an agonizingly slow and difficult process, similar to amending a federal state’s constitution. It would unsettle other periphery countries, and invite anybody and everybody with a complaint about the EU to try to inject it into the treaty process. Nobody wants to open that can of worms right now, or for that matter even suggest the possibility.

So even if Greece de facto introduces another currency, which is very likely, the rest of Europe will still consider Greece to be formally a euro member. And legally that’s what Greece will still be.

If the “yes” vote wins on Sunday, and there’s a prompt election of a new, pro-European government, I think Europe will make a serious effort to rescue the Greek economy and restore it to its June status quo ante. There would be no new Greek currency.

But if Tsipras wins, the odds that European leaders will fold and cave into his demands are practically zero. To return to the situation that prevailed in June, Tsipras would need to convince the EU to welcome him back to renewed negotiations and the European Central Bank to renew its support to Greece while those negotiations proceed.

Call me pessimistic, but I for one just can’t see that happening, no way no how. The negotiating table that Tsipras wants to go back to no longer exists. If he wins the vote, he will be left to manage the Greek economy without European support, and Greeks will be left to learn the hard way how much they like that. Europe will wait for Tsipras’ government to fall, which probably won’t take all that long.

Greece is almost out of euros

It’s hard to say exactly how many euros remain in the Greek banking system, but it can’t be many. As of the end of May, there was somewhere between €4.2b and €4.9b in the banking system under the control of the Greek government and Greek banks, down from somewhere between €8.4b and €10.4b at the end of December.

The Bank of Greece (the national central bank) also had €2.6b of unused “emergency liquidity assistance” allowance as of the end May. ELA is a way that the ECB permits Euro member NCBs in crisis situations to create euros and loan them to local banks in return for substandard collateral, which the NCB must guarantee to the ECB. The point is that Greece being a junk-rated sovereign has very little quality collateral, and what little there is has already been pledged. The BoG’s total allowance has been raised by €8.8b since then, to €89b as of June 26.

But increases in the BoG’s ELA allowance are generally signs that the Greek banking system has bled even larger amounts of cash. The ECB raised the BoG’s ELA allowance by a total of €11.9b in March through May, while a net total of €14.4b was wired abroad or withdrawn as banknotes from Greek banks during the same period. Even when the ECB was supporting Greece with repeated ELA allowance increases, the supply of euros in the Greek banking system was gradually dwindling.

The BoG also had €5.3b of gold and €19b of debt securities not including those held for ECB monetary policy. I don’t know if the BoG could or would consider selling those. The government must also have some banknotes in safes and cash drawers.

Meanwhile, even after all the austerity, Greece has still been running a current account deficit of around €800m a month for most of the year. Last year that swung to a large surplus during the summer tourist season, with more than 40% of the year’s international tourism revenues coming in July and August. I’m afraid this summer’s tourism revenues will be far lower.

In any case, the current account must right now be undergoing a hard, sudden adjustment in the positive direction. Most payments abroad are blocked, and people’s limited ability to spend from their bank accounts must be cutting deeply into sales of fuels and other imports. In any event, without ECB support, Greece must balance its inflows from exports and tourism with outflows for imports.

The government can’t for long on top of that pay to distribute euro banknotes through ATMs and to pensioners, even in seemingly limited amounts. Withdrawals of €60 a day per person can add up quickly. There are at least 6,000 ATMs in Greece and more than 8 million adults. If the ATMs are well stocked, outflows could easily exceed €100m a day.

Think Argentina, not Cyprus 

If the “yes” vote wins on Sunday, the following section will probably be scratch. But given the strong chance Tsipras will get the “no” vote he’s looking for, it’s worth looking at what would come next.

There would be, I’m sure, no return to serious talks anytime soon and no further increases to the ELA allowance. Within no more than a couple weeks, Tsipras would be forced to admit that even limited disbursals of euro banknotes are no longer possible.

This situation is a close parallel to what Argentina went through in 2001. Whatever funds aren’t withdrawn while the €60 a day allowance lasts will be permanently devalued.

Greece’s experience with “capital controls” won’t be anything like that of Cyprus, which enjoyed continued ECB support and had some relatively easy ways available to improve its current and financial accounts. Greece will have much more capital flight, and is likely to undergo a long period of political uncertainty when inward investment will be very limited. “Capital controls” is a shabby euphemism for what’s happening in Greece, which is a sudden collapse of the real value of bank deposits.

The only way Greece could afford to keep the euro as its actual everyday currency without ECB support would be to apply sharp haircuts to bank deposits. That of course would be political suicide. It’s not in Tsipras’ nature to be so brutally honest.

Instead, look for Tsipras to introduce a new de facto currency, with a nominal value in euros, but backed only by the Greek government. These could be called “IOUs” as many are suggesting, or whatever, it’s not important. Banks would open and offer pseudo-euros, not euros, to anyone wishing to withdraw from their accounts.

All the while Tsipras will insist these are temporary measures and that Greece remains officially a euro member. And the latter at least will be true. I expect a Greek pseudo-euro to be worth less than half a euro.

The big question is how the Greek government will deal with imports and foreign payments. The intelligent way to do it would be to dispense with all pretenses and force all holders of pseudo-euros to buy hard currency at market exchange rates. Banks could then make foreign payments from anyone’s bank account or card by simply applying the market exchange rate.

In other words, one possibility is that the new Greek currency could be a de facto separate floating currency, linked to the euro only in name. In such a scenario Greece would suffer a short steep recession but could recover relatively quickly from there.

But there’s also a stupid way to do it, which I fear is likely to happen. The government could maintain the pretense that its pseudo-euro is actually worth a euro. The government and other privileged organizations would be able to convert pseudo-euros to euros one-for-one, while most people and companies would have to
go to black-market money-changers to buy real euros.

In other words, another possibility is that Greece could become a dual exchange-rate country, like Venezuela or the communist parts of Europe back in the 1980s. And that of course would be an economic disaster.

But let’s face it, when left truly to his own devices, this is the kind of thing that Tsipras will very likely do. Indeed there’s already an element of dual exchange rates in place: a new Committee For The Approval of Bank Transactions is deciding which importers have the privilege of being able to convert their Greek bank deposit balances to euros.

(The chart data is all from the BoG: BOP data, aggregate bank balance sheets and BoG balance sheets version 1 and version 2. ELA appears in version 1 under “other claims on euro area credit institutions.” I did some addition and subtraction.)

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.