Oct 30th, 2015, 200 bios haircut of debt, if Greece hosts 2 mios of refugees may be on the table

• According to EuroWorking Group’s official, there are two significant pending items in order that a) creditors will release the next reimbursement of 2 bios euros and b) recapitalisation of Greek Banks will be completed by end '15. He referred specifically to the following pending items: a) the revenue related to the application of VAT on private education and b) the legislation concerning foreclosures.   

• The tragedy of refugees landing at the eastern Greek islands continues despite worsening weather conditions. The coastguard rescued approx. 250 immigrants from drowning on Wednesday but there are still 30 missing. In addition a new wreckage occurred on Thursday, off the island of Kalymnos, with over a 100 missing.

• Ahead of the announcement of Greek Banks’ stress tests this Saturday, the Greek government submitted the recapitalization’s bill in Greece’s Commons. The ratification of this legislation represents a prerequisite as regards the recapitalization of Greek Banks and has to take place within this weekend and before the opening of Monday’s markets. Government’s vice chairman Dragassakis stated that the recapitalization bill will be ratified this Saturday.

• After Piraeus Bank, Alpha Bank became the second Greek Bank which launched an exchange offer on its outstanding subordinated and senior bonds. It is offering to pay between 50 and 5, out of 100 depending on the type of securities.

• The Greek government continues its efforts to find alternative equivalent measures which will absorb its initial proposal to apply VAT on private education. It appears that this amount will be raised through additional taxation of vehicles.

• According to the Greek Parliament’s State Budget Office, taxpayers cannot afford to pay additional taxes and that the application of additional taxes will lead to tax evasion. In addition, it emphasized the need to reduce current tax burden which otherwise could lead local economy either to recession or to a long term stagnation.

• On the other hand, according to Greece’s Centre of Planning and Economic Research, the overall economic contraction will reach the level of -0.3% in 2015, which is significantly lower than the -2.3% which is included in state budget. In addition, it predicted a contraction of -1.6% only during the second half of 2015. As a reminder, Greece applied capital controls in end June.

• According to press linkages, Ministry of Labor‘s Katrougalos mentioned during a meeting with the members of Executive Committee of SYRIZA that Greece will apply, sooner or later, a National pension which will be equal to all pensioners.

Risk assessment. As it has been mentioned in previous commentaries, the issue of refugees’ influx to Greece’s eastern islands gradually gains ground in Greece’s agenda with creditors. Although both parts deny that the issue of refugees is included in the agenda of the discussions between Greece and creditors, it seems that parallel discussions are taking place.

If we add to the picture the recent article of Bild, which referred to a Deutsche Bank’s report stating that there will be an agreement as regards the haircut of approx. 200 bios of Greek debt, the following scenario gradually gains ground:

'Creditors to agree on a significant haircut of debt, if Greece manages to host a significant number of refugees for a certain period of time and allow international institutions to handle refugees’ matters as long as they will be hosted in Greek territory'     

The fact that smugglers gradually start using larger boats to deal with weather conditions shows that Greece will face an escalation of refugees influx, anyway. And this will be further intensified in case of  a general instability within Turkey. For the record, more than 500,000 refugees have entered EU through Greek islands since the beginning of 2015.

On a daily basis, there are articles which emphasize that Greece need to take more responsibilities as regards the handling refugees and act as the EU's SE frontier. This means, EU and Greece need to cooperate as regards the formation and roll out of a strategy, which will include not only the creation of a number of hot spots in Greek territory but most importantly, it will include a strategy for refugees’ inclusion in local social net, for a certain period of time.

It becomes evident that this won't only become an issue of historic importance but will assist handling of humanitarian crisis as well, in the most humanly effective way. However, local political system needs to approach the matter carefully.

Firstly, it needs to enhance its European role in the region; otherwise it would become part of the problem with catastrophic consequences to local economy and society.

Secondly, it needs to implement all structural reforms in order to ensure the sustainability of its pension system and internationalisation of its economy.

Last but not least, if this agreement occurs, it could benefit Greece both in political and economic terms as it will be established a regional economic and political hub, within European context. And this needs to be Greece’s paradigm in the era of globalisation.