Fisher Investments Editorial Staff
Politics, Reality Check

Greek Flip-Flops: Not Just for Santorini

By, 02/06/2015


New Greek Finance Minister Yanis Varoufakis dresses like magician David Copperfield. Photo by Hannelore Foerster/Getty Images.

Wednesday, Greek Alternate Finance Minister Nadia Valavani informed top officials at the Hellenic Republic Asset Development Fund (HRADF) they should seek alternate employment—the entire privatization bureau staff was being relieved from public life. (Including, we presume, the designers who brought you this gleaming website . ) They shouldn’t have been surprised—new Greek Prime Minister Alexis Tsipras’ anti-austerity platform includes promises to halt public asset sales, a long-contentious condition the EU, IMF and ECB “troika” installed in exchange for bailout loans. But Thursday, a day after sacking the entire staff, Ms. Valavani called them back and said, just kidding! The decision was on hold—they haven’t been privatized.[i] They won’t be doing any privatizing, but she has assured them their jobs are safe. It seems Greece’s publicly run fund charged with privatizing public assets is in a state of limbo—a microcosm for how negotiations between Greece’s new government and the troika have opened. There has been a lot of sound and fury thus far, and more is likely as negotiations develop. But compromise is still most likely. We would suggest investors not get caught up in this noise.

Last week, Greek markets gyrated wildly as Tsipras appointed a not-so-austerity-friendly cabinet. The new Finance Minister? Yanis Varoufakis, a self-proclaimed “Libertarian Marxist”[ii] whose fashion sense seems to have taken Europe by storm, and a man who has referred to the troika’s mandated austerity as “fiscal waterboarding.” Another new appointee, Foreign Minister Nikos Kotzias, refused to back new sanctions on Russia, after Russian-backed separatists shelled a southern Ukraine city. Many presume the appointments were the opening shot in contentious wrangling over relaxing austerity measures, permitting Greece to add to public payrolls, hitting the troika directly with a third default and ceasing those dastardly privatizations.

But we would suggest you not buy any of this at face value, which subsequent developments show. Varoufakis and Tsipras have already verbally backed off their demand for a third default, morphing it into a maturity extension and swap for growth-linked bonds. Which is probably itself a misdirection, considering the hip Varoufakis, upon presenting the plan, tweeted that, “Our promise = solid. Debt will be rendered sustainable, even if we replace haircut with euphemisms & swaps. No U-turn!” Euphemism is defined by Webster’s as: “The substitution of a mild, indirect, or vague expression for one thought to be offensive, harsh, or blunt.” We’d call it a marketing U-turn. Tsipras, for what it’s worth, has been quoted lately as saying that Greece will make good on its debts.[iii]

Other measures also amount to talk and flip-floppery. Hiring back public sector workers? Still under debate, but the Greek government’s plans were received by troika leadership rather … ummm … coolly. On one hand, Tsipras and Varoufakis pledge to end austerity. On the other, they’re mandating themselves a strict 1.5%-of-GDP primary budget surplus, spending promises be damned. They campaign on ending troika-mandated policy, then tell European leaders they’ll be the best pro-European reformers ever—even though, as Varoufakis put it, they’re “left-wing riff-raff.” Koutzias, after only a couple days, dropped the government’s opposition to Russian sanctions. Varoufakis blogged that Greece was never even opposed. But then Tsipras oddly claimed late Thursday he sought to boost bilateral cooperation with Russia. Wednesday, the ECB informed Greece it will end its exception to a no-junk-rated collateral rule and stop accepting Greek bonds as collateral for loans to the country’s banks, which many presume is a harsh tactic designed to back Greece off its quasi-default plan. That said, they didn’t cut off the Bank of Greece, which can still borrow and lend to banks under its emergency lending facility—which, rumor has it, they expanded Thursday. Hardball, this isn’t.

Ultimately, about the only action taken lately was Greece dropping objections against additional Russian sanctions, which the EU hasn’t moved to enact anyway. Well, and maybe the firing-unfiring of those would-be privatizers. Which brings us back to privatization.

Privatization measures have been a frequent point of contention between Greek leadership (this and earlier governments) and the troika. That it is back in limbo is more the norm than most current reporting suggests. Ultimately, though, Greece is just too widely known and small an issue to materially sway market direction for long. This latest bickering is likely just more noise—a continuation of the now five-year-old Greek debt tragicomedy.

 

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[i] This, we presume, was a very awkward telephone call.

[ii] OK. We admit it. We have zero idea how that could possibly work.

[iii] Seems like Law and Order-style good cop, bad cop to us. Or, if you prefer, the cop from the vastly underrated Lego Movie.

 

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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