PGM Capital – Blog

The Greece referendum of July 5 2015

By Eric Panneflek

Dear PGM Capital Blog readers,

In the early morning of Saturday, June 27, 2015, the July 5, 2015, referendum was announced by Greece Prime Minister Alexis Tsipras  and ratified the following day by the Greece Parliament and President.

Voters will be asked whether they approve of the proposal made to Greece by the EU, the IMF and the ECB during the Eurogroup meeting on 25 June.

The proposal consists of two documents, titled: "Reforms For The Completion Of The Current Program And Beyond" and"Preliminary Debt Sustainability Analysis.".

The question will contain two choices stated as "Those citizens that reject the proposal of the three institutions vote 'Not approved/No (OXI)'" and "Those citizens that agree with the proposal of the three institutions vote 'Approved/Yes (NAI)'".

Greece July 5, 2015 -Referendum Ballot-

It will be the first referendum to be held since the republic referendum of 1974, and the only one in modern Greek history.

The European Commission gave its view on the referendum on 29 June, in a speech by Jean-Claude Juncker, its President.

Jean-Claude Juncker

It said it was disappointed both at what it said was the Greek government's "unilateral withdrawal" from negotiations to clinch a new bailout extension agreement, and at their choice to now instead put a question about a not yet mutually agreed proposal to a referendum, with advice to the Greek people to vote "No".

The Council of Europe stated that the Greek referendum does not meet European standards, as voters were not given a two-week period to make up their minds, as non-binding guidelines recommend. Due to the hasty schedule, the Council of Europe was not able to send election observers and the Greek government had not requested them either


"YES" or "NAI"
Greeks who vote "yes" in the referendum will be casting a vote in favor of Greece remaining a part of the 19-member eurozone.

The vote is an acceptance of bailout funds in exchange for Greeks agreeing to budget cuts and other austerity measures set forth by Greece’s three creditors—the International Monetary Fund, the European Central Bank and the European Commission.

A majority of Greeks voting “yes” would also signal that the country has largely lost faith in prime minister Alexis Tsipras and his left-wing Syriza-led government.

The outcome could force leaders to resign, which would usher in a new provisional government.

Greek Finance Minister Yanis Varoufakis said on Friday that he will resign if Greeks back the bailout.

"NO" or "OXI"
A “no” vote on Sunday is a rejection of the austerity demands of Greece’s international creditors. The Greece prime minister, Tsipras tried to reassure Greeks this week that a vote against the bailout would allow him to sit down with the country’s creditors in a stronger negotiating position. The result, he said, would be a new bailout deal with better terms.


The “troika” of creditors, however, have said they are unwilling to renegotiate. If that’s true, and “no” voters prevail in the referendum, Greece risks an exit from the eurozone.

With more than 50 percent of the votes counted in the Greece bailout referendum, according with the Greece ministry of internal affairs "NO" or "OXI" is leading with approx. 61%.

Below video for the Telegraph, gives an impression of the total Greek debt which is approx.  323 billion Euros, or 180 percent of Greece GDP.

Below image gives a breakdown of Greece dept per creditor.

What a ‘NO’ (OXI) vote means for:

The Government
While the Syriza party and Mr. Tsipras and his fellow ministers have survived the referendum, they still need to take immediate action to stabilize the country.

If the prime minister is right and the eurozone responds to a NO vote by offering a fresh round of bailout talks he will still have try to hold together a country close to social breakdown. However, if Mr. Tsipras is wrong and the creditors cut off Greece’s banking system that is when the horror show really begins.

He will need to implement emergency measures to pay public sector workers and recapitalize the banks. This would probably mean issuing state IOU's as a form of parallel currency, while also commissioning the printing of drachma notes.

Under these circumstances Mr. Tsipras would need to explain to an angry and frightened Greek population why he got it wrong when he said NO would lead to more talks and was compatible with Greece remaining as a full member of the Euro.

The ordinary Greeks
Mr Tsipras claimed the banks will open on Monday, July 6, if the people vote NO but it is virtually certain their savings would remain locked up for some considerable time.

If creditors turn of the funding taps to the banks and the Government is forced to recapitalise them with IOUs Greek people would find the effective value of their savings instantly devalued at a stroke.

Companies that have borrowed from abroad in Euros would have no choice but to default, resulting in a cascade of failures and yet another surge of unemployment.

As a consequence of this, the economy would free fall.

However over time - it is hard to say how long -  it is possible that the Greek tourism industry might get a boost from a return to the drachma and that other exports would pick up too. But there would certainly be a period of severe pain.

The creditors:
Having been spurned in a popular vote they would face one fateful choice above all others: do they cut off emergency funding for the Greek banking system and precipitate a full-blown financial meltdown on their door step?

If they do, they would probably have to send emergency aid in order to avert a humanitarian disaster as imports dwindle and vital supplies of food and medicine dry up.

Creditors would also face a huge problem over Greece’s place in the European Union.

Vox Populi Vox Dei:
Now that Greece has delivered a dramatic, unexpected and sensational rejection of the terms demanded by its creditors in return for aid, it put itself closer to leaving the Euro.

We are afraid that "OXI" might be a synonym with "GREXIT".

German chancellor, Ms. Angela Merkel and France president, Francois Hollande agreed that the referendum result should be respected and called for eurozone leaders summit to be held on Tuesday, July 7.

As a consequence of the result of the Greece referendum, we expect the Global capital markets to fall sharply on Monday, July 6.

We believe that the result of this Greece referendum has complicated matters more for Greece as well as for its creditors, and that Global Capital Markets will experience very high volatility with sharp correction in the coming days ahead.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek


Time is Running Out for Greece

By Eric Panneflek

Dear PGM Capital Blog readers,

In this weekend's blog edition we want to discuss with you the Time Line of Greece Debt Crisis since they have deferred the IMF payment due on June 4th, to next Tuesday June 30th.

The crisis intensified when, the International Monetary Fund (IMF) dramatically pulled out of talks with debt-stricken Greece on Thursday, June 11, after it accused Athens of failing to compromise over labour market and pension reforms.

The move left the Greek negotiating team with no option but to say it would also be leaving the talks and heading home to Athens.

On Thursday June 18, the head of the International Monetary Fund, Christine Lagarde said,

"Greece cannot delay paying its debt after a crucial meeting of eurozone finance ministers ended without a rescue deal being struck."

Christine Lagarde, the IMF’s managing director, issued the threat as eurozone finance ministers gathered in Luxembourg to find an 11th hour solution in what was seen as Greece’s last chance to strike a deal with creditors to release bail-out cash and save its eurozone future.

Furthermore she said as she confirmed that the June 30 deadline for Greece’s repayment of €1.6 billion to the IMF remains definitive.;

There is no grace period or two-month delay, as I have seen here and there

Talks on ending a deadlock between Greece and its international creditors have ended in failure on Sunday, June 14 with European leaders venting their frustration as Athens stumbles closer towards a debt default that threatens its future in the euro.

European Union officials blamed the collapse on Athens, saying it had failed to offer anything new to secure the funding it needs to repay €1.6 billon to the International Monetary Fund by the end of this month.

Greece said it was still ready to talk, but that EU and IMF officials had said they were not authorized to negotiate further. Athens insists it will never give in to demands for more pension and wage cuts.

The negotiations have become deadlocked as Greece has refused to meet the demands of Brussels, the ECB and the IMF. Greek Prime Minister Alexis Tsipras says he will not compromise on pension cuts, tax rises and targets for budget surplus in order to make interest payments.

The Greek delegation failed to convince the creditors to release the last tranche of 7.2 billion euros left in Greece’s 240 billion-euro bailout fund.

Hardline leftists of the Greece's ruling party refuse to bow to EU creditors demands to implement austerity measures in return for the cash needed to keep Athens afloat and are working out how to go it alone after bankruptcy.

Prime minister Alexis Tsipras has also publicly warned that if creditors don't change their stance, Greece is ready to take the plunge.

He said:

"If Europe wants the division and the perpetuation of servitude, we will take the plunge and issue a 'BIG NO'."

The Belgian Finance Minister warned: “There is no free lunch being part of the euro zone. It requires discipline.”

One of the first outcomes of a Greek default is likely to be a run on the banks, as ordinary people, businesses and investors lose confidence in economy and move to get their cash amid fears national institutions will go bust.

This is exactly what happened on Thursday June 18, as the country edged closer to default despite assurances from Prime Minister Alexis Tsipras that the doomsayers are wrong, Greeks pulled more than 1 billion euros out of their banks in a single day, banking sources said on Friday June 19.

Including the billion withdrawn on Thursday, savers have pulled 3 billion euros (US$3.4 billion) from Greek banks since talks between Athens and its creditors collapsed at the weekend, the banking sources told Reuters. That represents about 2.2 per cent of household and corporate deposits at the end of April.

Below chart shows how Greece due to the run on the banks is becoming a cash economy.


The Greek central bank - which has warned that the country's future in the euro and even the European Union is at risk unless the government strikes a deal with its creditors - tried to calm savers by saying that the banking system remained stable.
With no solid agreement, the Greek government is set to default on 1.6 billion euros ($1.8 billion) owed to the International Monetary Fund on Tuesday June 30th.

As Reuters notes:

"Its stricken banks have depended on emergency liquidity from the European Central Bank to stay open, and the banking system faces at the very least a further flood of withdrawals after billions have left in recent weeks."

If Greece defaults on its debts, it is almost certain that it won't be able to stay as a member state of the eurozone and will have to leave the euro.

This would likely mean a return to its previous currency the drachma.

At the moment, the Greek economy is in one of the worst recessions of all time and investors are dumping Greece stocks sending the Athens stock exchange to a 10-year low as can be seen from below chart.

Athens stock market 10-year chart

But a change to a devalued currency could help the ailing economy because it would make Greek exports cheaper to neighbouring countries and help give them a boost.

However, as the Greek government has no cash - and a default would mean that few institutions or investors are likely to lend the government any cash - it could have to in effect print its own money.

This could cause Greek inflation to go through the roof and see ordinary families struggling to afford the basics needed to live.

In an unexpected move, Prime Minister Alexis Tsipras went on national television early Saturday, June 27 to call for a referendum on July 5, so that Greek citizens can decide whether to accept or reject the terms of a bailout deal proposed by the country’s creditors.

With his speech, Mr. Tsipras upends the stalemate in negotiations between Greece and its creditors, throwing into doubt whether Greece will be able to make a 1.6 billion euro debt payment that is due on Tuesday to the International Monetary Fund, while also deepening concerns that the beleaguered country could leave the eurozone.

As a consequence of this, in Greece, queues have formed outside banks and ATM's amid concerns that the Greek central bank might start restricting Euros withdrawals.

A news agency reported that as a consequence of this a third of Greek ATMs ran out of cash to dispense on Saturday June 27.

The head of the International Monetary Fund, Christine Lagarde, told the BBC that because the European part of Greece's bailout programme would have expired by 5 July, any referendum would relate to "proposals and arrangements which are no longer valid".

But she said that if there was a "resounding 'yes'" to staying in the eurozone, then the response would be "a resounding 'let us try'".

To avoid bankruptcy, Athens urgently needs an €7.2 billion (US$ 8.1 billion) bailout loan but, despite months of talks, the Greek government has not been able to reach a deal with EU creditors over the terms attached to the money.

We believe that chances are that as people rush to the ATMs during this weekend, Greek banks may not open on Monday, June 29.

The gatekeepers of the cash - the IMF, the EC and European Central Bank (ECB) - want Greece to continue with austerity reforms.

But Greece's Syriza governing party, which was elected to power in January, has consistently refused to accept the measures, which include a change to pensions and labour markets.

No progress has been made after five months of tough negotiations, between Greece and its creditors.

In order not to lose face the Greece prime minister Mr. Tsipras called for a referendum on July 5th, in which Greeks would be asked whether they wanted to accept or reject excoriating tax hikes and pension cuts that the EU, ECB and International Monetary Fund have set as a condition to release desperately needed bailout funds.

A silent detail in this is that the Eurozone finance ministers have rejected a Greek request to extend a bailout programme beyond 30 June.

The IMF managing director Ms. Christine Lagarde, in an interview with the BBC, also said a referendum scheduled in Greece for July 5 may be asking voters to weigh proposals that are no longer under consideration.

She said.

“So, at least legally speaking, the referendum will relate to proposals and arrangements that are no longer valid.”

If Greece doesn’t make the $1.7 billion payment due to the IMF on June 30, it won’t have access to funding until it clears up its debts, she said, reiterating the fund’s policy on arrears.

Negotiations could be revived if Greek voters show they want to stay in the euro zone, Lagarde said.

She also said;

“If there was a resounding ‘YES, we want to stay in the euro for good, we want to be part of that, we want to restore the status of the economy, we want to be sustainable in the long run,’ there would be a resounding ‘let us try,”

Last but not least as D-DAY approaches for Greece, we hope that the almighty illuminates the path of the Greece population and theirs leaders, and guide them for them to take the best decision with the  future of your country and children in mind.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek


Highlights of the week of June 1st 2015

By Eric Panneflek


Dear PGM Capital Blog readers,

In this weekend's blog edition we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of June 1, 2015:

  • IMF urged the FED to wait until 2016 to raise rates
  • Greece defers payment to IMF

In its annual review of the U.S. economy, the International Monetary Fund said on Thursday, June 4, a series of negative shocks, including a strong dollar and bad weather, had sapped momentum for job creation and expansion, prompting a downgrade to its growth expectations to 2.5% for the year. Its last estimate in April was for a 3.1% expansion.

In a statement the IMF managing director, Ms. Christine Laggard said:

"The strength of the dollar, caused partly because of weakness in the rest of the developed world, was dragging on on growth in the USA and that things could get worse.'

She also said:

"There is a risk that a further marked appreciation of the dollar — particularly one that takes place in an environment where policies to address growth deficiencies languish both in the U.S. and abroad — would be harmful”

Based on this the IMF is calling for the Federal Reserve to hold off its first rate increase in nearly a decade until 2016.

On Thursday, June 4, Greece told the IMF it would delay a debt payment of about €301million, due today, submitting a request to the fund to bundle payments totalling about €1.5billion due this month into one lump-sum payment.

The proposal to bundle the payments was confirmed just hours after IMF managing director Christine Lagarde said she expected Greece to meet the €300 million payment due tomorrow.

The deployment of a seldom-used but legal device may buy Greece time as it struggles to agree a new reform deal with lenders.

But it also indicates the country’s precarious financial position, more than four months after the Syriza-led government swept to power in January’s general election.

Greece was last month forced to tap its reserves at the IMF to meet a €750 million payment.

With this action, Greece became the first country to defer a payment to the International Monetary Fund since Zambia in the 1980s.


IMF message to the FED:
Fed officials, too, have expressed concern about the global economy. Ms. Lael Brainard, a Fed governor, said in a speech on June 2nd, that “foreign headwinds” were causing problems that could lead the Fed to delay interest rate increases.

Ms. Leal Brainard, isn't the only FED governor who is raising the red flag regarding the intentions of the FED to start raising rates in the fall of this year. Her colleague  Mr. Charles Evans, president of the Federal Reserve Bank of Chicago, reiterated on Wednesday June 5th, in Chicago that the Fed should wait to raise rates until inflation strengthens.

We of PGM Capital agrees with the IMF and believe that the recovery the in the country isn't strong enough to handle a rate hike. A rate hike, will have a very negative effect on the overvalued US Capital Markets. On top of this, it will give an even more upwards pressure to US-Dollar which will effect have a negative effect on USA export sector, tourism and subsequent jobs in these sectors.

Greece defers payment to IMF:
Greece’s public debt is 180 per cent of GDP. The loans are in a currency that the country does not control. It is therefore foreign currency debt. The IMF knows that Greece cannot possibly pay this down by draconian austerity and the longer it pretends otherwise, the more its authority drains away.

Based on this, the Greek government faces another set of crucial deadlines in its interminable bail-out drama this month, as fears mount that the country could become the first developed nation to ever default on its international obligations.

But with public sector wages and pensions to pay out, a cacophony of voices on Syriza's Left have vowed to prioritise domestic obligations unless creditors finally unlock the remainder of its €240billion bail-out programme.

In April of this year a senior Greek official told the following to the international press:

"We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer," 

The current phase of Greece’s crisis is nearing its conclusion as the country runs out of money after four months of deadlock.

The Greeks are not withholding a euros 300 million payment to the IMF because they have run out of money, though they soon will do. Five key players in the radical-Left Syriza movement took an ice-cold, calculated decision not to pay. They knew exactly what they were doing.

On one level, the “bundling” of euros 1.6 billion of payments due to the IMF in June is just a technical shuffle, albeit invoking a procedure last used by Zambia in the 1980s. In reality it is a warning shot, and a dangerous escalation for all parties.

Syriza’s leaders are letting it be known they are so angry, and so driven by a sense of injustice, that they may indeed default to the IMF on June 30. In doing so they will place the institution in the invidious position of explaining to its 188 member countries why it has lost their money so carelessly, and why it has made such a colossal hash of its affairs.

The delay in the payment to the IMF is an escalation of the confrontation, It increases the risk of bankruptcy and Grexit.

In Greece’s current predicament we know what Keynes would advocate –  Default, reschedule, reorder, postpone, invite debt forgiveness, or whatever, as much as you like. But Greece desperately needs increased demand. And the only way of securing this is via a much lower exchange rate. That means Grexit and return to the Drachma.

The Drachma after being reintroduced, will devaluate immediately against all mayor currencies, a lower exchange rate will increase net export which will increase the net income of the country.

Look at it this way: if Greece manages to produce extra GDP as a result of a devaluation, it will be able to export more without importing more.

Moreover, instead of devaluation being anticipated and feared, once the deed is done, confidence would return. Spending, output and incomes would all increase, drawing in imports to match the increased exports and providing the wherewithal for increased living standards.

There are “none so deaf as those that will not hear”.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek