Margareta Pagano: Is there a Plan B to give Greece a soft landing?

The markets stay calm as tempers flare up again

If you look closely at what's been happening in Greece this week, there are two quite different stories emerging.

On the one hand, we've seen the Greek politicians engaged in fiery slanging matches with the Germans over the terms of the bailout. They are, for the most part, the same politicians and officials who manipulated, some would say lied about, Greece's entry into the euro at the wrong price and the wrong time, and who are now intent on saving face. In riposte, many German and Brussels officials have been equally inflammatory, with some showing a flagrant disregard for the plight of the Greeks protesting in the streets. Yet the financial markets are ignoring the rhetoric and are behaving remarkably calmly, so calmly that several euro brokers I have spoken to suggest that, despite the posturing, the politicians are now working behind the scenes on a managed default. More pertinently, the markets now believe the eurozone will survive Greece defaulting and that the risk of contagion spilling over to Portugal and Spain is no longer so great. So what's going on?

Over the past few weeks, the cost of borrowing in the eurozone has dropped sharply. Corporate bonds – 10-year AAA-rated, euro-denominated bonds – have gone from yielding, on average, 3.8 per cent at the beginning of January to 3.4 per cent today. Even the same maturity sub-investment graded "junk" bonds have seen yields drop by an average of 1.5 percentage points since the beginning of the year, a huge drop. Sovereign bonds have shown similar falls – Italian 10-year yields have fallen from 6.9 per cent in January to 5.6 per cent now – despite a downgrade to junk.

Why the change? Louise Cooper, rising-star analyst at BGC Partners, suggests the markets are so much calmer for two reasons; they've been beaten into a temporary submission by the ECB's big bazooka, but also there is a growing realisation that a Greek default doesn't have to be messy. As Cooper says, the ECB's LTRO bank-lending programme is proving a success by providing more liquidity. Investors and traders are more comfortable with a default as they are more confident that most of Europe's banks and financial institutions are on a sounder footing. But there's also the acceptance that even if Greece were to bow down and hand over its Treasury to Berlin, the debt problem isn't going to go away. Even if Greece pays off the 20 March chunk of debt, what happens after that, and after that?

The Greek economy is contracting faster than at any time over the past decade. Gross domestic product has fallen by some 13 per cent over the past four years and the latest forecast is that GDP will fall another 7 per cent by the end of this year, a gigantic fall. Unemployment is at a staggering 21 per cent and this latest austerity plan will see hundreds of thousands more out of work. The privatisation programme is more or less on hold, the tax take will fall even more, while welfare payments may have to rise despite the cuts; the vicious cycle is self-evident. That's why the markets are convinced that the politicians are working out a managed default that would allow Greece to devalue but stay within the euro, a new "soft" euro band; for those with long memories, not unlike the old exchange rate mechanism. This would allow Greece to devalue by up to 25 per cent and continue using the euro note, but a Greek one stamped with its insignia, thus keeping pride intact too.

It's impossible to know whether such a plan is being hatched, but the markets are usually pretty good at smelling these things out; if it happens, August is the most likely month. No one is going to admit to a Plan B as it would have to be conducted in secrecy with the other eurozone central banks over a weekend, and announced first thing on a Monday to avoid a flight of capital out of the country. The Greek banks would have to be recapitalised, a floor would have to be put under corporate and household debt. Such an arrangement has the benefit of allowing Portugal and Spain to opt out too into a more flexible band, should they need to. And hey presto, you then have a northern "hard" euro area of Germany, Austria, Finland, Netherlands – maybe France and Italy – and trading can start competitively.

The beauty of this would be to put the Greeks in charge of their own destiny again, however fragile.

Whatever happens, it's going to be painful – but an instant resurrection has to be preferable to death by a thousand cuts. The latest news is that Germany's Angela Merkel and Europe's other leaders are confident they can agree the €130bn bailout package at tomorrow's finance ministers' meeting. Fingers crossed.

There's no call for investors to take the moral high ground on BP trio's shares

Reports that BP has awarded shares to three top directors under its three-year incentive plan that ended in 2011 has understandably caused a few frissons, particularly as the oil giant prepares to go on civil trial.

Those receiving the awards include Bob Dudley, chief executive, Iain Conn, BP's head of refining and marketing, and ex-chief executive, Tony Hayward, who resigned after the Gulf of Mexico oil accident that killed 11 men. However, the trio will receive only a sixth of the potential shares awarded in 2009 because BP didn't meet all the performance criteria, such as total shareholder return.

Even so, Mr Dudley is in line to receive 49,356 ordinary shares, worth about £240,857 at BP's current price, Mr Conn has 71,488 ordinary shares, worth around £348,860 and Mr Hayward is eligible for up to 755,512 shares although the one-sixth measure gives him 125,000 shares, worth around £600,000. (All the shares have to be held for another three years before they can be sold).

BP hasn't confirmed the amount but Mr Hayward is eligible for the shares because, under the terms of his departure, he was to be treated the same as other directors even though he left before the scheme ended. It's no surprise some shareholders are criticising the bonuses, suggesting BP should be more sensitive and Mr Hayward shouldn't receive any shares because of responsibility for the disaster.

But are they right to do so? If investors are taking the moral high ground, then surely they should be truly principled and forgo the dividends they earned over this period? By the same token, the UK government shouldn't accept the huge amount of tax that BP pays to HMRC. Shareholders would be on far stronger ground if they objected to the way BP bases its incentive plans on such complex and, frankly, often ridiculous criteria. Get the contracts changed if you object but let's not have this preaching. There really isn't one law for one and one for another.

PROMOTED VIDEO
Extras
indybest
Travel
Flocking round: Beyoncé, Madame Tussauds' latest waxwork, looking fierce in the park
travelIn a digital age when we have more access than ever to the stars, why are waxworks still pulling in crowds?
Arts and Entertainment
tv
Arts and Entertainment
Judi Dench appeared at the Hay Festival to perform excerpts from Shakespearean plays
tvJudi Dench and Hugh Bonneville join Benedict Cumberbatch in BBC Shakespeare adaptations
Sport
Is this how Mario Balotelli will cruise into Liverpool?
football
News
Ronahi Serhat, a PKK fighter, in the Qandil Mountains in Iraqi Kurdistan
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Arts and Entertainment
Poet’s corner: Philip Larkin at the venetian window of his home in 1958
booksOr caring, playful man who lived for others? A new book has the answer
Arts and Entertainment
Exhibition at the Centre Pompidou in Metz - 23 May 2012
art
News
Matthew McConaughey and his son Levi at the game between the Boston Red Sox and the Houston Astros at Fenway Park on August 17, 2014 in Boston, Massachusetts.
advertisingOscar-winner’s Lincoln deal is latest in a lucrative ad production line
Life and Style
Pick of the bunch: Sudi Pigott puts together roasted tomatoes with peppers, aubergines and Labneh cheese for a tomato-inspired vegetarian main dish
food + drink
Arts and Entertainment
Alfred Molina, left, and John Lithgow in a scene from 'Love Is Strange'
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Junior Quant Analyst - C++, Boost, Data Mining

£25000 - £35000 per annum: Harrington Starr: Junior Quant Analyst - C++, Boost...

Service Desk Analyst- (Desktop Support, Help desk)

£25000 - £35000 per annum: Harrington Starr: Service Desk Analyst- (Desktop Su...

Junior Quant Analyst (Machine Learning, SQL, Brokerage)

£30000 - £50000 per annum: Harrington Starr: Junior Quant Analyst (Machine Lea...

UNIX Application Support Analyst- Support, UNIX, London

£45000 - £55000 per annum: Harrington Starr: UNIX Application Support Analyst-...

Day In a Page

Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape