Greece in shock as banks shut; ECB rejects bumper Greek plea
Juncker slams Tsipras govt and urges Greeks to vote ‘Yes’
ATHENS, June 29, (RTRS): Stunned Greeks faced shuttered banks, long supermarkets lines and overwhelming uncertainty on Monday as a breakdown in talks between Athens and its international creditors plunged the country deep into crisis.
With Greece’s bailout expiring on June 30 and an IMF payment falling due at the same time, Prime Minister Alexis Tsipras pleaded by phone with European officials to extend the programme until a referendum on Sunday on its future terms.
The frantic efforts to secure Greece’s place within the euro zone followed a dramatic weekend. Tsipras’s decision, early on Saturday, to put the aid package to a popular vote took the lenders and some of Tsipras’s own negotiating team by surprise.
It also pushed Greece towards defaulting on 1.6 billion euros ($1.77 billion) due to the International Monetary Fund on Tuesday.
Greeks - used to lengthy talks with creditors before an eleventh-hour deal - were left shocked by the turn of events. Lines snaked outside ATMs and inside supermarkets while fears of disruptions to petrol and medicine supplies grew.
The breakdown has pushed the European Union and euro zone into uncharted terrain. Financial markets reacted badly on Monday, with European bank shares down sharply on worries of contagion within the financial system.
“I can’t believe it,” said Athens resident Evgenia Gekou, 50, on her way to work. “I keep thinking we will wake up tomorrow and everything will be OK. I’m trying hard not to worry.”
After months of talks, Greece’s exasperated European partners have put the blame for the crisis squarely on Tsipras for rejecting a package they consider generous. The Greek side says further austerity would simply deepen one of the worst economic crises of modern times in a country where a quarter of the workforce is already unemployed.
Emotions were unusually raw among erating on an ambitious wage bill reform initiative which aims to standardize pay across the public sector and to increase central control over the government’s wage bill. We think authorities are serious about addressing the long term fiscal challenges facing the country and doing so in a gradual manner that does not derail the pace of growth.
The non oil economy has registered a healthy growth rate since 2013, and we expect it to maintain growth around 5% in 2015 and 2016. The most recent available official data on GDP growth indicates that Kuwait’s non oil economy grew by 5.6% in 2013. We think that pace of growth was largely maintained in 2014, supported by an accelerating pace of project implementation and a robust consumer sector.
There are signs that non oil activity may have eased slightly in Q1 from the strong pace seen in 2013 and early 2014, though this trend appears temporary and should be short-lived. Private credit growth was lower in 2014 thus far in 2015,following several years of accelerating growth. Private credit grew by 5.7% y/y through Europe’s leaders. EU Commission President Jean-Claude Juncker said he felt personally betrayed and told Greeks a “no” vote would point to a euro exit.
“I will say to the Greeks who I love deeply: you mustn’t commit suicide because you are afraid of death,” he told a news conference.
French President Francois Hollande appealed to Tsipras to return to the negotiating table and German Chancellor Angela Merkel said she was willing to talk to the Greek leader if he wanted.
The Greek government will keep banks shut at least until after July 5, the date of the referendum, and withdrawals from automated teller machines were limited to 60 euros a day when they reopened at midday. The stock exchange will also stay shut.
The creditors wanted Greece to cut pensions and raise taxes in ways that Tsipras has long argued would be counter-productive.
As rumours flew, dozens of pensioners queued outside at least two offices of the April 2015, down from growth of 8.1% in 2013 and 6.2% in 2014. Business credit (excluding personal facilities and the non bank financial sector) alone slowed to 5% y/y from 7.9% in 2013. The lower figures are largely due to the write-off of Family Fund loans by banks and to the pay-down of legacy debt by some corporates in 2014. Adjusting for these factors, we think growth has been relatively steady through April 2015 at around 8% y/y where it should close the year.
The solid pace of growth has been driven and supported by investment spending, itself due to improved implementation of the government development plan. The plan calls for both government and private investment in a host of large infrastructure projects. Following some delay in prior years, 2014 saw a pickup in the pace of implementation, with project awards rising notably in 2014. Further progress should be seen in the coming period following the legislative approval earlier in 2015 of the broad investment plan for the coming five years (2015-2020), as well as the FY15/16 capital spending budget. National Bank of Greece on Monday after hearing they could withdraw pensions from some branches. They were turned away, Reuters photographers said.
“I’ve worked all my life, only to wake up one morning to a disaster like this,” said one shop owner, who was there to collect his wife’s pension.
Despite the financial shock, parts of daily life went on as normal, with shops, pharmacies and supermarkets in the city opening and Greeks meeting to discuss their country’s fate at cafes and restaurants. Tourists gathered as usual to watch the changing of the presidential guard outside parliament.
The European Central Bank rejected Greece’s request for 6 billion euros of extra emergency funds on Sunday, but is expected to continue limited support for Greek banks until the July 5 referendum, people with knowledge of the matter said.
The size of the request underscores the scale of the panic gripping Greek savers, and would have left the ECB in little doubt about the dramatic consequences
The 2015-2020 development plan targets around KD 34 billion in new project spending in various sectors including oil, power generation, transportation and housing. Most of the projects in the plan have already been approved individually and have been on the government’s drawing board for several years.
The government also seeks to improve the business environment and to boost private sector participation in the economy. This will be done largely through the public-private partnership (PPP) investment model. Legislation passed in 2014 should lead to better regulation of the PPP initiatives. The new law replaced the Partnerships Technical Bureau (PTB) with the Kuwait Authority for Partnership Projects (KAPP).The new body has greater independence and executive powers and should manage PPP initiatives more effectively.
Growth in the consumer sector has been resilient and consistent, though we expect growth to continue to moderate. of rejecting it.
However, the prospect that existing central bank funding will not be withdrawn offers hope that some banks will briefly open their doors, for example to pay pensions.
Greeks had rushed to withdraw their money after Prime Minister Alexis Tsipras on Saturday promised a snap vote next Sunday on the stringent terms demanded by creditors in return for cash to prevent Greece defaulting on its debts.
The Bank of Greece in turn asked the ECB’s policy-setting Governing Council to approve a top-up to an 89-billion-euro emergency credit line on Sunday, to cover the shortfall.
“The request by the Bank of Greece was for 6 billion euros of ELA (Emergency Liquidity Assistance),” said one of the people with knowledge of the talks. “The recommendation submitted to the ECB was signed by the governor (of the Bank of Greece).” The sector will remain a key driver of the non oil economy. Household income growth has remained supportive, with hiring among Kuwaitis and skilled expats steady. As a result, consumer spending and household borrowing growth have been healthy despite some moderation over the last year.
Card spending growth eased slightly to 12.6% y/y in 1Q15, its slowest pace in three years. The figure points to some slowing in the consumer sector though the pace remains healthy. Personal loan growth also slowed to a three-year low though it remained quite healthy too at 11.8% y/y in April 2015. The positive outlook in other sectors of the economy and continued support from current government spending should help support continued robust growth in the sector.
Real estate sales growth cooled thus far in 2015 following strong growth in 2014, though the commercial sector was an exception. The residential and investment sectors both cooled, with sales during the first four months of 2015 shrinking by 15% and 23% compared to the previous year. This followed very strong growth in 2014, with sales of investment properties rising by nearly 30%last year. Meanwhile, the commercial sector continued to register robust gains in sales during the first four months of 2015, as the KD volume of registered transactions was up 21% y/y.
Inflation continued to pick up with upward pressures coming largely from domestic sources. Headline inflation came in at 3.4% y/y in April 2015, up from 2.7% a year before on stronger housing inflation. “Core” inflation (excluding food) was slightly higher at 3.7% y/y. Consumer price growth has been on a moderate uptrend over the last two years but has remained subdued thanks to low international inflation. We expect inflation to increase to an average of 3.5% by the end of 2015 on accelerating domestic activity. Particularly, we expect housing inflation to cool off later this year.