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[sludgehound]

Greek mirage hid the cracks

2 articles. First on local situation, seoond on ECB's Governing Council

Talk of US DJI down 200-250 in am -1% to 2%? Admit I wasn't fully aware of the severe reversal in Greece's fortunes. Never gave them much credit for the success they had showed. Just figured all this was more of the old Greece quiet days.
Guess another of those Irish Celtic Tiger collapse stories.

ATHENS--Last year, Greece looked as if it were on the way up. The economy was growing--at one point, faster than Germany's . International investors jostled to buy the government's bonds. Banks were rebuilding. Politicians talked about a "clean exit" from Greece's yearslong bailout: no more loans, no more money, no more humiliating reviews by bureaucrats from Brussels .
But many Greeks were still on the way down.
Katerina Papalevizopoulou was out of work. Her husband had lost his job driving a truck and was driving a cab. In 2014, he made around EUR7,000 ($8,000) , down from EUR9,000 the year before and half of what he had earned in 2008. They owe EUR70,000 on a mortgage on their apartment here.
They sold their wedding rings. They sent their car to the scrap yard, for EUR250 . They sent their boy, now 10, to live with his grandparents outside the city. "I don't want my son to be around this," Ms. Papalevizopoulou says in their small and cluttered apartment.
"If you want to look at my fridge, my pantry, it is empty," she says. She apologizes that she has nothing to offer visitors. "The priest brings me food," she says.
For many Greeks, any economic improvement has been a mirage, even before the financial chaos of recent weeks. Debt burdens have become harder to bear. Wages have tumbled, pushed down by policies intended to make Greek workers more competitive internationally. Social services have been cut to help close the budget gap.
As a result, Greek households have cut their own spending--and they have fallen behind on their debts.
The consequence, as Greece heads in to a momentous referendum Sunday, is a country broken both socially and economically. The rupture has helped elevate Alexis Tspiras, leader of the radical-left party Syriza, to prime minister. It has also been a force behind him as he has urged Greece to vote "no" to a deal with its European creditors.
And no matter what outcome--a break with Europe or a rapprochement--the economic devastation means Greece will need a lot of fixing.
Its banking system may be first in line, and a look at the country's mortgage market shows why. When it entered the euro in 2001, Greece had a relatively small amount of consumer borrowing: Its banks had extended EUR24 billion in loans to domestic households at the end of that year. By the end of 2009, just before the debt crisis exploded, the figure had quadrupled to EUR99 billion .
Greece has high rates of homeownership, which Greek banks have financed with mortgages. Those are now in trouble. The crumbling economy has pushed many in the middle class to the lower middle class and many in the working class into poverty. Delinquencies on loans have soared.
The four big Greek banks reported in the first quarter that between 32% and 39% of their Greek loans were nonperforming. And the pace of souring loans appears to have increased sharply this year: National Bank of Greece , the country's largest lender, reported that EUR154 million in Greek mortgages became overdue, by 90 days or more, in the fourth quarter of last year. For the first quarter of this year, the figure jumped to more than EUR280 million .
"Because of all the measures the government chose to take, there is no money," says Joanna Stentoumi, a legal-aid lawyer whose clinic is helping Ms. Papalevizopoulou and her husband. They intend to file paperwork seeking judicial relief from their loans.
Under a 2010 law that introduced a sort of personal bankruptcy process, judges can suspend or reduce debt payments and ultimately restructure most debt. But the courts are so clogged with such cases that many won't be heard for years. Maria Saridaki , an Athens lawyer who handles debt cases, says petitioners pay a fraction of their debt each month while waiting for a hearing. The minimum is EUR40 a month. One of her clients, who is paying that sum, has a court date in 2024.
There is also a moratorium on foreclosures of most primary residences, though some residences and small business premises aren't covered. And banks voluntarily modify many loans--reducing payments but tacking accrued interest on to the end.
In the northern Athens neighborhood of Ilion, a group of residents meets every Wednesday at 4 p.m. at the local civil court, the hour when foreclosure auctions are supposed to take place. They block lawyers from entering, says Fotini Kokoni , an organizer of the group. She describes the effort as a "social movement."
"For us, it was a choice between paying the loans and being able to feed ourselves and our children, and we chose the second," she said Saturday night in a book-lined cafe and meeting space in Ilion festooned with "Oxi" signs--Greek for "no." Conversation came to a halt when, on a big projector television, Mr. Tsipras began to speak at a referendum rally.
Greek banks have been closed for a week, and their cash is fast running out. It is impossible to say when they'll reopen. But when they do, they will have a giant task. The flood of delinquencies, clogged courts and inability to foreclose have left the system in a sort of suspended animation, with few good options.
Widespread foreclosures would cause severe social disruption, and probably wouldn't do a great deal for the banks anyway: "Greek people can't buy anything," says Ms. Stentoumi, the legal-aid lawyer. And writing down the value of the loans might push the banks under while the prospect of government aid is nil.
Syriza and Mr. Tsipras have seized on the problem of troubled loans, especially to poorer Greeks with little prospect of paying. "Dealing with 'red loans' is a crucial issue to restart the economy," says Zois Pepes , a member of Syriza's central committee and longtime bank worker and union organizer.
Mr. Pepes says Syriza wants to create a regulatory framework for a vast restructuring of private debt. It is "still on the table," he says.
What is possible after the referendum is far from certain, but the economic burdens have animated voters. "Thirty percent of people are lost. They can't feed their children. They can't go to the doctor. There is no social structure right now," says Ms. Stentoumi. "Both choices are bad--very bad and very, very bad. With a 'no,' if we are smart, we might get a better deal. With a 'yes,' we have no chance of anything better."
Ms. Papalevizopoulou, who is 33 years old, had a son in 2008. He had a birth defect that led to a build-up of fluid around his brain. Her husband had inherited their apartment, but they mortgaged it to pay for medical equipment so that their son could come home. She ticks off the expenses-- EUR24,000 for a ventilator, thousands of euros for oxygen canisters--little of which was covered by the health system.
The boy, Panagiotis, died in 2011. They sank in grief. Their finances were collapsing, too.
Their mortgage payment had been EUR337 a month. They got the bank to reduce payments by more than half, but it wasn't enough. "We paid whenever we could," Ms. Papalevizopoulou said. The bills came in. Her husband's taxi income went down. He pays EUR52 a day to rent the cab, EUR10 for insurance, EUR10 in taxes and close to EUR25 in gas, she says. Some days, "we are left with EUR5 , EUR3 , EUR6 " in earnings.
She applied for a state welfare stipend of EUR500 a year for low-income people, and got it last year. A week ago, with Greece's government down to essentially no cash, she learned that this year's sum wouldn't be paid.
Ms. Papalevizopoulou long supported Greece's mainstream Socialist party, whose leader signed Greece's first bailout in 2010. But with no economic relief in sight, she switched her allegiance and in January voted for Mr. Tsipras's Syriza party.
She remains staunchly behind the prime minister and his vow to make a break with austerity measures demanded by Greece's creditors. "He runs from Athens to Brussels trying to do something, but these people abroad only want to hear 'yes,'" she says. On Sunday, "I will vote, and I will vote 'no.' "
Apostolis Fotiadis contributed to this article.
Write to Charles Forelle at [e-mail]

(END) Dow Jones Newswires
07-05-15 0200ET
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MW Will Greece now leave the euro? Watch the money to find out
By Michael Kitchen , MarketWatch
With initial results from Greece (http://www.marketwatch.com/story/first-official-projection-says-at-least-61-of-greeks-voted-no-in-referendum-2015-07-05) late Sunday showing voters there had decided to reject the terms of their nation's bailout deal, European leaders were scrambling to figure out their next move, with a rush of meeting due in the coming hours.
These are slated to include an emergency conference of top eurozone finance officials, as well as a meeting of European leaders Tuesday.
But most important of all such gatherings will likely be the one that takes place Monday at the European Central Bank . There, the ECB's Governing Council will discuss Greece's monetary lifeline, the Emergency Liquidity Assistance (ELA) program, which provides vital funds to the country's financial system.
"We have long argued that the day the ECB cuts off ELA is, de facto, the day that Greece would leave the euro," Société Générale chief economist Michala Marcussen wrote several hours ahead of the Greek referendum result.
While leaders in Athens have said they want to retain the euro as Greece's currency, Barclays analysts posit that a Greek exit from the euro -- as soon as the ELA goes dry -- would be a simple matter of mathematics.
"The bank liquidity crisis is likely to turn into a solvency crisis once the ECB shuts down ELA, probably no later than July 20 (when a EUR4.2 billion payment to the ECB becomes due)," the Barclays team wrote following initial news of the referendum's outcome.
"Fiscal problems would become more acute; the government may be forced to issue IOUs, which effectively become a parallel currency to the euro. A new currency by the central bank of Greece is likely to eventually become necessary to inject both liquidity and recapitalize banks," they wrote.
This, of course, begs the question as to whether the ECB will cut off Greece's ELA on July 20 or earlier. While most analysts said such a move is unlikely this week, there is less consensus as to whether the ELA will last the month.
SocGen's Marcussen says the ECB would wait until negotiations are completely and utterly exhausted before pulling the plug.
"It is clear that the ECB has no appetite to front-run the political process, and as long as discussions are ongoing between the Greek administration and the euro area, we consider it unlikely that the ECB would fully cut the ELA and Greek banks' access to ECB liquidity facilities," she wrote late Sunday.
Barclays , meanwhile, sees a so-called "Grexit" from the euro system as the more likely scenario now that Greek voters appear to have rejected the current rescue deal, but nor does Barclay dismiss other, less likely potential outcomes.
"Can an exit be avoided? We believe the answer is potentially yes; we see two possibilities, even if both are less likely than an exit. Europe and Greece could agree on a program on the [ International Monetary Fund's ] terms. A more disruptive scenario would be one in which financial and macroeconomic conditions rapidly worsen, and social unrest could result in a political crisis, yielding a more moderate pro-deal government," they wrote.
That last consideration about who will lead Greece could be a deciding factor, with many commentators saying the referendum's result now ensures the left-wing Syriza party of Prime Minister Alexis Tsipras will remain in power.
Pantheon Macroeconomics chief eurozone economist Claus Vistesen wrote early Monday that while he believes some sort of agreement will be brokered to keep Greece from losing the euro, "this assumption is riddled with uncertainty."
That uncertainty, Vistesen wrote, revolves around the Tsipras government and its counterpart in Germany , which has served as the unofficial leader of Greece's European creditors (http://www.marketwatch.com/story/emerging-no-vote-in-greece-poses-merkels-biggest-challenge-2015-07-05) during the crisis.
"Syriza's gamble that a 'no' will force EU leaders to 'respect' Greek democracy is a bold one. If the German government considers its mandate to stand firm, a Grexit is the only option we can see with Syriza at the helm in Athens ," Vistesen wrote.
- Michael Kitchen ; 415-439-6400; [e-mail]
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(END) Dow Jones Newswires
07-05-15 1848ET