A crucial vote on austerity reforms this evening in Athens that would set the stage for further bailout loans to Greece may have just gotten a little easier.
The vote over controversial labor reforms, which is expected to be a nail-biter, is at threat of being derailed if Greek Prime Minister Antonis Samaras' ruling coalition can't cobble together the commitments it needs to get the bill passed.
If that turns out to be the case, Citi economist Jürgen Michels writes, " major political turmoil may follow, which we think could possibly bring near-term Grexit back as a likely outcome."
Junior coalition partner Democratic Left has been saying it will vote "no" on the measures, ridding Samaras of 16 critical votes in a contest that come down to much less than that.
Now, however, Democratic Left is softening their stance a bit in what looks like a bit of a win for the ruling coalition just one day ahead of the vote.
Citi economist Jürgen Michels and his team tell the story in a note to clients:
This morning the Central Committee of the smallest of the government coalition parties, Democratic Left, announced the party favours a “yes” vote for the 2013 Budget but a “present” vote for the omnibus bill.
Last week, Democratic Left leader, Fotis Kouvelis, said his party would vote against the troika-supported package as it included unacceptable, in his view, changes to labour market rules.
Given the latest developments, Michels writes, "As it currently stands, we see it likely that the votes pass, especially if Democratic Left MPs decide to abstain."
While the news seems like a bit of relief, the Greek government bond market is still signaling a very close vote, says Reuters correspondents Marius Zaharia and William James, who write that Greek bonds have seen significant trading activity ahead of the vote on both sides.
Zaharia and James report:
Together [buyers and sellers] have boosted trade sharply.
"A lot of our investors are getting involved in this story. Some people have taken really big positions, and a very significant proportion of hedge funds in that distressed debt area now have a Greek position," said Gabriel Sterne, an economist at Exotix, a broker that deals in Greek debt.
"It looks like we're going to be watching the Greek vote live on TV again," said Sohail Malik, lead portfolio manager of a special situations fund at ECM Asset Management which held Greek bonds until 2011.
Based on the current mathematics of the vote, Deutsche Bank strategist George Saravelos envisions four possible outcomes, with passage of the labor reforms by a narrow majority the most likely:
*Bill passes by wide ~170 MP majority backed by all coalition partners (30% probability)
*Bill passes by narrow ~155 MP absolute majority only backed by ND and PASOK (30% probability)
*Bill passes by weak ~145 MP majority backed by ND and PASOK and subject to Dem Left abstaining (20% probability)
*Bill fails to pass (20% probability)
While passage of the vote would be a big relief to the Greek government, which Samaras has said will run out of cash by mid-November if it does not receive further bailout aid from its international troika lenders, it has the rest of Greece furious.
A massive two-day strike to protest today's austerity vote has led to widespread transportation shutdowns and a media blackout in Athens while streets are flooded with angry Greek voters.
A security guard taking part in the strikes yesterday told Euronews, "What we want is that our deputies don't even dare to vote 'yes' on these measures – if they do, as I look you in the eyes and with full awareness of what I'm saying, there will be extreme forms of social explosion."
Even central bank officials are protesting the cuts. Today, 30-40 officials reportedly resigned from the Bank of Greece over measures that would cap their salaries at 5000 euros per month.
Regarding what happens after the vote, Deutsche Bank strategist Lars Slomka writes to clients that still, "the German agenda for a possible readjustment of Greece’s rescue package and future rescue packages for other EMU countries remains unclear" and that "the most controversial political debate [in the German Bundestag] could take place on the possible redesign of the economic adjustment program for Greece."
And even if the vote doesn't pass, Societe Generale strategist Vincent Chaigneau says it " would not necessarily mean ‘game over’ for Greece."
While failure to pass the vote would probably mean the Greek government is cut off from additional loans and the country goes bankrupt, according to Chaigneau, he also writes that there is still one other possibility:
The press over the weekend reported that the Eurogroup was considering forcing the implementations of reforms in Greece, even if the parliament hasn’t approved them.
This sounds dubious, as would be seen as undermining democracy in Europe. But this may highlight that EA policy makers will try all options that can avoid a Greek exit.
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