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<p class="MsoNormal"><b style="mso-bidi-font-weight: normal;"><span style="text-decoration: underline;"><span lang="EN-US">News In Brief</span></span></b></p>
<p class="MsoNormal" style="margin-bottom: .0001pt;"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US"><span style="mso-tab-count: 1;">                </span>Some good news…<span style="mso-spacerun: yes;">  </span>as it is presented by the Greek Government</span></b></p>
<p class="ListParagraphCxSpFirst" style="margin-bottom: .0001pt; mso-add-space: auto; text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">Greek Prime Minister Antonis Samaras said that oil and gas reserves in western Greece, the Ionian and south of Crete could worth a massive Euro 150 billion in revenues over 25 to 30 years. Exploratory mapping and tendering are at early stages.</span></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">The Bank of Greece governor and ECB board member, George Provopoulos, said that 2013 was the last year of recession for Greece but structural reforms need to be undertaken more quickly because to date they have been timid. He also underlined that tax issues need to be simplified and made certain to attract investors.</span></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">The European Commission in its winter forecasts said that Greek GDP will edge higher by 0.6% in 2014 and grow by 2.9% in 2015. That would be welcome after a six year recession which has wiped out over 27% of Greek GDP.</span></p>
<p class="ListParagraphCxSpMiddle"><span lang="EN-US"> </span></p>
<p class="ListParagraphCxSpMiddle"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US">Greek Banking System still on the rocks?</span></b></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">Reports have suggested that Greek banks will need another Euro 20 billion to reinforce their capital bases but if the Troika accepts the central banks stress test methodology the amount needed will be close to Euro 6 billion. There is a sufficient amount in the Memorandum’s bank rescue package to meet those needs without an additional third Memorandum and bailout for Greece.</span></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">Greek deposit flows resumed a negative trend in January falling Euro 2.39 billion to total of Euro 161 billion. The shrinking deposit base weakens local financial institutions and increases their dependence on ECB funding.</span></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">Credit expansion in Greece contracted 4% in January due to high non performing loans and weaker household demand. It is not expected to improve marginally until the last quarter of 2014.</span></p>
<p class="ListParagraphCxSpMiddle"><span lang="EN-US"> </span></p>
<p class="ListParagraphCxSpMiddle"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US">Privatization moves – adds to the liquidity of bail-out loans</span></b></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">The Greek privatization agency received only one binding bid for the former Hellenikon Airport. The bid master-plan envisages a total investment plan of Euro 7 billion. The consortium is led by Lamda Development in association with an Abu Dhabi sovereign wealth fund unit and a Chinese conglomerate. This is seen as one of the few privatization successes to date in a process mired by bureaucracy and general reluctance of investors to trust Greece.</span></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">The Ministry of Finance will tap about Euro 3 billion through repos from the cash reserves of state owned entities to help cover the expected funding gap of 2014. It is also expected that an agreement with the Troika will be sealed before the next Eurogroup meeting so it can access Euro 8 billion worth of bailout program fund.</span></p>
<p class="ListParagraphCxSpMiddle"><span lang="EN-US"> </span></p>
<p class="ListParagraphCxSpMiddle"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US">Poverty rises – employment prospects are grim<span style="mso-tab-count: 5;">                                                                               </span></span></b></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">The Central Bank of Greece said that 2.5 million Greeks, or 23.1% of the population, live below the poverty line. This is probably a conservative estimate after countless rounds of austerity and tax hikes.</span></p>
<p class="ListParagraphCxSpMiddle" style="text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">Private sector umbrella union’s GSEE Labor Institute estimates that Greece will need 20 years to create the one million jobs lost since the start of the crisis.<span style="mso-spacerun: yes;">  </span>If Greece manages to have a 2% GDP growth in 2015 it will only be able to create 26,000 new jobs. Such long term forecasts are precarious even if unemployment numbers have been devastating. The average official unemployment rate is almost 30% of the labor force and above 64% for youth.</span></p>
<p class="ListParagraphCxSpLast"><span lang="EN-US"> </span></p>
<p class="MsoNormal" style="text-indent: 18.0pt; margin: 0cm 0cm .0001pt 18.0pt;"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US">GR 10-year yields drop </span></b></p>
<p class="ListParagraph" style="margin-bottom: .0001pt; mso-add-space: auto; text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">Yields on Greek 10-year bonds have dropped below 7% for the first time since 2010. However, to be sustainable borrowing yields need to fall to 6%. Greece hopes to return to market borrowing in the second half of 2014 by issuing a 5-year bond. </span></p>
<p class="MsoNormal" style="margin: 0cm 0cm .0001pt 36.0pt;"><span lang="EN-US"> </span></p>
<p class="MsoNormal" style="margin: 0cm 0cm .0001pt 36.0pt;"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US">Impacts of the Ukrain political crisis </span></b></p>
<p class="ListParagraph" style="margin-bottom: .0001pt; mso-add-space: auto; text-indent: -18.0pt; mso-list: l0 level1 lfo1;"><span lang="EN-US" style="font-family: Symbol; mso-fareast-font-family: Symbol; mso-bidi-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7.0pt 'Times New Roman';">         </span></span></span><span lang="EN-US">As the Ukrainian crisis unfolds there are fears of spillover dampening other Emerging markets, putting pressure on similar grade currencies and bonds and also threatening the EU economy which is dependent on Russian energy exports. Ukraine risks default under its heavy debt pile mainly held by Russia. Since the start of the year Ukraine’s currency has fallen more than 25% and their bonds are yielding and unsustainable 30% plus. Urgent action will be required by the EU and IMF. The IMF has already sent in a evaluative mission and the EU has signaled it may lend Ukraine up to Euro 20 billion but these plans and intentions could change depending on events unfolding in now Russia controlled Crimea and whether a further incursion into eastern Ukraine follows. Analysts expect that this ongoing crisis will pressure equity markets but bolster US Treasury bonds and spot Gold. Oil and gas have already jumped on the developments and global stock markets have pulled back. Russia's ruble has fallen to a fresh all-time low against both the USD and the Euro despite an interest rate hike and its stock markets have suffered a sharp sell-off.</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><b style="mso-bidi-font-weight: normal;"><span style="text-decoration: underline;"><span lang="EN-US"><span style="text-decoration: none;"> </span></span></span></b></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><b style="mso-bidi-font-weight: normal;"><span style="text-decoration: underline;"><span lang="EN-US">Analytical Focus</span></span></b></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><b style="mso-bidi-font-weight: normal;"><span style="text-decoration: underline;"><span lang="EN-US">Cyprus Makes Waves In The Eurozone</span></span></b></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><b style="mso-bidi-font-weight: normal;"><span lang="EN-US">Cyprus Entire Cabinet Resigns, Ensuing Minority Government Threatens Reforms</span></b></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">The whole Cyprus cabinet resigned on February 28 after the third party of the ruling coalition left the Government, destabilizing the political landscape of the split island. While the fallout may be immediately contained it suggests that important reform efforts may stumble given parliamentary minority must shoulder the burdens.</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">Under new leadership the formerly second largest party of the coalition, DIKO (center right), is trying to find its new equilibrium and its departure from the Government was precipitated on the surface by a bill for privatization. It envisaged the divestment of seven state owned enterprises worth Euro 1.5 billion. The Troika (ECB-EC and IMF) design the sell-off to boost competitiveness and to help Cyprus repay some of the Euro 10 billion in potential loans. The privatization bill has been deemed a pre-requisite for the release of Euro 150 million in EU funds and Euro 86 million in IMF bailout cash without which the country will be strapped.</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">As mentioned by Elena Panaritis in numerous articles and interviews<span style="mso-spacerun: yes;">  </span>“<i style="mso-bidi-font-style: normal;">The Troika’s major flaw is that it diagnoses crisis economies on the assumption it is an accounting and liquidity problem, but you can’t structure economies on austerity alone</i>. <i style="mso-bidi-font-style: normal;">It’s an approach that that undermines its own goals since it defeats the creation of any popular critical mass that has to support reform for them to succeed.” </i></span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">Last week hundreds of Cypriots, including employees of the power and telecommunications utilities, opposed to privatizations had protested outside the parliament and even turned power off to the legislature building trapping deputies inside for some hours.</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">“<i style="mso-bidi-font-style: normal;">Privatizations should happen in parallel with deregulation and a new efficient regulatory framework, but for them to succeed you need a clear vision of where you want the economy to go. You also need a good regulatory framework for competition so you don’t create private monopolies out of state owned monopolies which just widen the gap between the very rich and very poor</i>,” Panaritis noted. “<i style="mso-bidi-font-style: normal;">The Troika is being led by emotion and anger and less by the historical experience of waves of past crisis like that of Latin America which I have worked on.”</i></span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">Additionally, the political turbulence has been sparked by the joint statement negotiated between the two divided sides of the island on a plan for a federalist reunification. No bridges between the two remaining government parties and break away DIKO exist on that issue. Cyprus has been split since 1974 following a Turkish invasion in the north side of the island. Only the Greek side of the island is recognized and also a member of the Eurozone.</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">It is unfortunate that the Troika’s timetable and deadlines collided with the Cyprus reunification issue since political polarization is an almost certainty in the near future. “Cyprus is still bleeding since 1974 and now that it has found substantial oil and gas reserves in its exclusive economic zone there is massive pressure from Turkey and the international community for a very fast solution so these deposits can be exploited,” </span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">Cyprus is a presidential system and the current incumbent, Nikos Anastasiadis, has four more years to serve, so an immediate election in the wake of the resignations is not on the table. However prospective and prolonged deadlock in the legislator could also jeopardize the Cyprus bailout effort. For now DIKO has said that it is satisfied that adequate changes were made to the privatization law so that when it is resubmitted for a vote by the end of this week most of its deputies will vote for its passage. Legislators in Cyprus have more freedom in their decision making and don’t always tow the party line, so while passage is likely there are no guarantees on such hot potato laws.</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">The eleven ministerial resignations last Friday will force a cabinet reshuffle by March 15 which is barely one year into the five year term of the president. From now on with a weak minority the president and government may be hamstrung. A more consensual approach to reforms and economic restructuring will need to be adopted. No one knows if the Troika which is standing firm on its Memorandum conditions, like privatization, will accept some watering down of tough conditions.</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">Panaritis underlined that: “<i style="mso-bidi-font-style: normal;">The Cyprus bailout efforts have been hit by this political crisis in the wake of the resumption of peace talks between the Greek-Cypriot and Turkish-Cypriot communities. The island will make waves for the Troika and the Eurozone</i>”</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">Earlier in February the Troika found that the Cyprus bailout was “<i style="mso-bidi-font-style: normal;">on track</i>” and that the economy had contracted by less than originally thought. Given the shaky political whether the next quarterly will be as positive unless Cypriot politicians abandon populism and show leadership grit.</span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US"> </span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US">Drafted by Nick Skrekas </span></p>
<p class="MsoNormal" style="margin-left: 18.0pt;"><span lang="EN-US"> </span></p>