Syriza campaigned as the Anti-Austerity party, the party that would end the foolish Troika bailouts that really are nothing more than a conduit for ECB funding as well as keeping European banks and other from realizing massive losses that they've likely only delayed.
On January 26th in the Daily Wrap we addressed to some small extent, the tone Syriza set after winning a near majority in the Greek elections and then forming a coalition governemnet for the few remaining seats they needed for a majority.
The 40-year old Alex Tspiras came out swinging and set the tone early from a position of strength. From the linked post above, here are some excerpts,
"Syriza has campaigned on ending austerity programs in Greece which have been part of bailout deals Greece has received, but put the country through much pain and seeking a debt write down. In a few of Tsipras's first acts as new Prime Minister, he sent a message to the Euro-zone's largest Greek creditor, Germany, by visiting the Kaisariani rifle range where Nazis executed 200 Greeks in May of 1944.
He also had his first meeting with none other than the Russian Foreign Ambassador.
It seems the Troika (and those related) have been quick to send congratulations and maintain and over-concillatory tone from many of the statements I've read from people like Jean-Claude Juncker, the European Commission President; Christine Lagarde- the managing director of the IMF and various Finance Ministers from across Europe. In addition, it seems these creditors are quick to get the word out that they are "looking forward" to "working with" Tsipras on potential redrafting of terms, perhaps interest rates, etc."
That was Syriza coming in to negotiations from a position of strength. I learned many years ago at my first two jobs that strength is respected, weakness invites bullying.
From yesterday's Daily Wrap...
"One of the other major ordeals brewing is Greece. Yesterday's market strength was claimed to be because of some FT headlines about Greece and essentially making progress, in last night's Daily Wrap I refused to go in to any more detail as I knew it would be a complete waste of time and as of today, it's exactly that.
The initial combative Syriza one had the Troika nearly on their knees begging to work something out, whether the Greek Finmin was misunderstood or just tried to be too cooperative, away from the hard line they initially took, it didn't end well and the EU started strong-arming them immediately once they smelled weakness. As a result, today we had this from Greece and their FinMin...
"There has been no "U-turn" on the Greek debt position, adding that "Our promise is solid, debt will be rendered sustainable even if haircut replaced with euphemisms, swaps" Greece’s Finance Minister Yanis Varoufakis comments in Twitter post.
However, that 1-day of weakness may have been too much and too late as Germany calls the Greek plan "Half baked " and reflects it, shortly after the ECB rejects it out of hand as well, that''s what the Greeks get when they try to play ball with the Troika, they were in a much better position when they were combative and meeting with Russia, at that point all of Europe was falling all over themselves to find a solution that works for the Greeks, so this is obviously going to be a knock-down, drag-out brawl as Syriza learns in one day what happens when you try to tone things down and find a settlement in good faith, even if it isn't immediately acceptable on the first pass. Expect things to heat up and Striza to go back to what they know which could lead to...? Yeah, those three dots (...) are the great unknown and the real danger for Europe and the global economy."
The initial combative Syriza one had the Troika nearly on their knees begging to work something out, whether the Greek Finmin was misunderstood or just tried to be too cooperative, away from the hard line they initially took, it didn't end well and the EU started strong-arming them immediately once they smelled weakness. As a result, today we had this from Greece and their FinMin...
"There has been no "U-turn" on the Greek debt position, adding that "Our promise is solid, debt will be rendered sustainable even if haircut replaced with euphemisms, swaps" Greece’s Finance Minister Yanis Varoufakis comments in Twitter post.
However, that 1-day of weakness may have been too much and too late as Germany calls the Greek plan "Half baked " and reflects it, shortly after the ECB rejects it out of hand as well, that''s what the Greeks get when they try to play ball with the Troika, they were in a much better position when they were combative and meeting with Russia, at that point all of Europe was falling all over themselves to find a solution that works for the Greeks, so this is obviously going to be a knock-down, drag-out brawl as Syriza learns in one day what happens when you try to tone things down and find a settlement in good faith, even if it isn't immediately acceptable on the first pass. Expect things to heat up and Striza to go back to what they know which could lead to...? Yeah, those three dots (...) are the great unknown and the real danger for Europe and the global economy."
I REALLY expected Syriza to "try" to recover from their moment of weakness that the EU and ECB immediately exploited and called Syriza's bluff. As I mentioned last night, in my opinion the 1-day of weakness was enough, that Syriza was not likely going to recover their initial position of strength over 1 day of weakness.
Then today, when I expected Syriza to at least TRY to regain the position of strength they'll need to get anything other than exactly what the Troika tells them they'll get or do, we heard this from Syriza...
Overnight the Greek Finance Minister said that Syriza does not accept the logic of Troika but that does not mean they cannot cooperate.
When I heard this this morning, I thought to myself, "So much for trying to recover a position of strength and then came the nail in the coffin, the strongest trump card Greece held they gave up for nothing...
" GREECE `WILL NEVER SEEK FINANCIAL AID' FROM RUSSIA"
GAME OVER...
Not even 12 hours later... The ECB lifts its waiver on Greek bonds as collateral, effectively ending all ECB funding for Greek banks which likely ends in Greek chaos/bank runs.
More to the point, the ECB has just called any and all bluffs of Syriza and it didn't take the market more than a minute to understand what the two possible outcomes are...
The SPY wipes out all intraday gains from the gap down this morning in a matter of minutes on huge volume as the market realizes there are now only two outcomes due to perhaps the young (40 year old) Greek Prime Minister's inexperience and faux paux of allowing even the slightest hint of weakness...
1) Less than 2 weeks after Syriza won a landslide victory in Greek Elections and was given a mandate to confront the Troika/EU and end austerity, end the unsustainable debt Greece has been saddled with (regardless of fault) and accept whatever terms the Troika gives them, which may have an interesting domestic political outcome as Greeks ushered in Syriza because they are tired of suffering under the Troika's austerity or...
2) Greece exits the Euro-zone and all heck breaks loose in European financials as well as Greece, unless they do get aide from Russia who would love to have a port right in the middle of the Mediterranean.
Either way, the market gets it and understands what's at risk and all of this over 1 day of weakness or even the perception of weakness. Look at what happened, less than 24 hours after their weakness the ECB cuts Greek bank funding and less than 12 hours after burning their trump card (Russia), the ECB does the same and puts Syriza on the back foot.
Ruthless!
Press Release From ECB
PRESS RELEASE
4 February 2015 - Eligibility of Greek bonds used as collateral in Eurosystem monetary policy operations
ECB’s Governing Council lifts current waiver of minimum credit rating requirements for marketable instruments issued or guaranteed by the Hellenic Republic
Suspension is in line with existing Eurosystem rules, since it is currently not possible to assume a successful conclusion of the programme review
Suspension has no impact on counterparty status of Greek financial institutions
Liquidity needs of affected Eurosystem counterparties can be satisfied by the relevant national central bank, in line with Eurosystem rules
The Governing Council of the European Central Bank (ECB) today decided to lift the waiver affecting marketable debt instruments issued or fully guaranteed by the Hellenic Republic. The waiver allowed these instruments to be used in Eurosystem monetary policy operations despite the fact that they did not fulfil minimum credit rating requirements. The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules.
This decision does not bear consequences for the counterparty status of Greek financial institutions in monetary policy operations. Liquidity needs of Eurosystem counterparties, for counterparties that do not have sufficient alternative collateral, can be satisfied by the relevant national central bank, by means of emergency liquidity assistance (ELA) within the existing Eurosystem rules.
The instruments in question will cease to be eligible as collateral as of the maturity of the current main refinancing operation (11 February 2015).
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