Here’s a safe prediction for 2017: the Greek debt crisis will turn ugly again.
In fact, the next chapter has already begun. On Wednesday, eurozone finance ministers put their plan for short-term debt relief on hold because Athens handed a relatively small sum of money to pensioners at Christmas and said it would pay for school meals for 30,000 children in impoverished areas.
In the view of Alexis Tsipras, Greek prime minister, the country has earned the right to make small acts of generosity, like €617m (£518m) for pensioners. Greece didn’t just meet its target to run a budget surplus of 1.5% last year, it exceeded it. That achievement was secured after seven years of austerity, a period in which Greece also found itself at the front end of Europe’s migration crisis.
In the eyes of the eurozone ministers, however, rules are rules. Tsipras’s measures “appear not to be in line with our agreements” and thus debt relief will be suspended. The message to Tsipras was plain: perform a U-turn, however politically embarrassing.
It is possible that the immediate tension could be defused, but it is hard to be optimistic about next year. The demands on the budget get stiffer from here – a surplus of 3.5%, rather than 1.5%, is required by 2018. The International Monetary Fund regards that target as too stiff, but its argument for greater leniency comes with strings attached. It wants Greece to make sweeping structural reforms to its economy and labour laws to promote growth. But how, politically, is that supposed to happen in the face of the current high rates of unemployment and without an adequate system of welfare support?
The position is a mess. Greece is at loggerheads with eurozone ministers, and the eurozone and the IMF are struggling to maintain a united front. Optimists might argue that bigger disagreements have been overcome in the past. The difference this time, however, is that the demand for a 3.5% budget surplus looks unachievable, which is the IMF’s point. The body is right, but the eurozone’s position is only hardening.
Two would-be suitors prepare for Punch-up
Roll up, roll up, there’s a fresh brawl at Punch Taverns. This time the squabble is not between junior bondholders, senior bondholders, shareholders and various hedge funds. That re-financing saga – the delayed consequence of turning a pub company into a grotesque exercise in financial engineering in the early 2000s – was finally resolved 18 months ago at the fifth attempt.
Now comes something conventional: a takeover battle. Nobody has made much money from owning Punch shares for the past decade but suddenly two parties are keen to buy a company that, even in shrunken form, still owns almost 3,300 pubs in the UK.
Unfortunately, from the point of view of the great British drinker, neither potential new owner raises a cheer. The Heineken proposal may be anti-competitive in intent. The Dutch brewer already owns 1,100 leased pubs in the UK. A plan to take the larger portion of Punch – some 1,900 pubs – may just be an attempt to force more of its bland lager on to a semi-captive audience. No wonder its co-traveller on the offer, Patron Capital, is presented as the leader.
The problem with the other contender, Emerald Investment, is that its chief, Alan McIntosh, was a founder of Punch back in the late 1990s. McIntosh has enjoyed success on many fronts over many years, but being a pioneer of the pubco model was not his finest hour. He might argue that he left Punch soon after flotation in 2002 and that the high-leverage formula only became dangerous when successors pushed it too hard. Maybe, but let’s hear that argument in full; financial engineering definitely seemed to be present at the birth.
Still, Stephen Billingham, Punch chairman for the past half decade, deserves credit for rescuing the company from its near-death experience, an outcome that was not guaranteed during the refinancing negotiations in 2012-14. He is probably obliged to back one of the proposals since the hedge funds who dominate the shareholder register may demand an exit. Besides, Punch’s securitised debts are still 6.6 times its top-line earnings, so his negotiating hand is weak.
But, strange as it sounds after Punch’s horrible history, independence wouldn’t be a bad outcome. On the trading front and in its relations with tenants, Punch has been showing definite signs of rehabilitation.
Financial spreadbetting firm’s move is outside bet
Financial spreadbetting firms hate the Financial Conduct Authority’s plan to make the industry a safer place for punters by clamping down on the leverage ratios that can be used on products such as contracts for difference. But would CMC Markets really re-locate to Germany? The idea, apparently, is under consideration.
Don’t put a penny on it happening. Some 350 of CMC’s 575 staff work in London and only 20 in Germany. The upheaval would be immense. Besides, the FCA is not stupid and has ways to tackle regulatory arbitrage, for example banning firms from advertising. CMC, one strongly suspects, will stay put.
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