Greece Crisis Worsens Amid Political Stalemate

[interestrateripoff]

http://www.telegraph.co.uk/finance/economics/gilts/8534065/Greece-crisis-worsens-amid-political-stalemate.html

Antonis Samaras, head of New Democracy, the conservative party that earlier this month called for a renegotiation of the original €110bn (£95bn) bail-out, said he would not support additional austerity measures, totalling €6bn, to reduce the country's budget deficit.

His refusal to back the government could jeopardise both payment of the rescue package's next instalment, of €12bn due in June, as well as ongoing talks over a second bail-out, of as much as €60bn.

The political wrangling came as Vince Cable, the Business Secretary, became the first UK politician to admit openly that Greece has no option but to restructure its €330bn of public debt.

"What they are going to have to do is to have a rescheduling of their debt and it can be done in a soft way or a hard way, and that's what the current debate is about," he said in a newspaper interview. "I think in practice what will happen, people are already discussing this, is a negotiated rescheduling.

"You can't just deal with this by cutting, cutting, cutting – it does not work."

There is no plan to pay the money back, there is no plan to cut spending. The only option for Greece is to default.

Still as long as the ECB and EU keep pretending we can all say it's OK.

[interestrateripoff]

http://market-ticker.org/akcs-www?post=186790

ECB Freaking Out (Good) Over Greece

Hoh hoh hoh....

“There’s no solution possible” for Greece other than its austerity program, Noyer, Bank of France governor, told reporters in Paris today. “Restructuring is not a solution, it’s a horror story.” If the country fails to meet the terms of its bailout, Greek government debt will be “ineligible as collateral” at the ECB, he said.

Right. All those institutions that bought this paper believing they were "too big to fail" would have to face the fact that they're not, that they can fail, that the government will let them fail.

This is not a bad thing, it's a good thing. It's called "market discipline" and is really important.

“The lengthening of maturities raises very difficult questions,” Noyer said. “There’s a strong chance it will be the equivalent of a default.”

That's because it is a default.

The ECB last year suspended the minimum credit-rating threshold for Greek bonds after the country’s banks were shut out of credit markets for funding. Banks can borrow as much money as they need for up to three months against collateral.

So the ECB made a decision to take crap. Now they're whining that it tastes like, well, crap.

Who's responsibility is this again?

“The markets are getting impatient, they don’t see a real sort of light at the end of the tunnel,”

There's a light.

It's a train.

For Greece ‘to reduce the stock of debt, the only solution is ambitious privatization,” Noyer said. “It is necessary to have the equivalent of an internal devaluation. Cut production costs. There is no other solution.”

Yes there is. Greece can tell the ECB this:

Go feck themselves?

The markets are realizing there is no money, it will never be paid back and the politicians are lying. Still it could be worse.

[Deckard]

"I think in practice what will happen, people are already discussing this, is a negotiated rescheduling. "

Let's add this one to the list of politically-correct-neologisms being created almost daily to describe what's going to happen next in Greece.

Sovereign Liability Management

Debt Reprofiling

Negotiated Rescheduling

This is getting really, really amusing, like an episode of The Office

[onesmallstep]

Mr Juncker explained that the restructuring would involve a delay in repayments and a cut in interest payments, to be agreed with the country's lenders.

However, he said it would need to be done in a way that would not be deemed a default by the international rating agencies, which would cause an "enormous problem" for Europe's banks, who would then have to recognise billions of losses on their balance sheets.

did someone say 'TIMBERRR'

brilliant, absolutely brilliant, now work harder and pay more, go on get on with it.

[leicestersq]

Vince Cable is getting his act together again I see.

[_w_]

http://www.telegraph...-stalemate.html

There is no plan to pay the money back, there is no plan to cut spending. The only option for Greece is to default.

Still as long as the ECB and EU keep pretending we can all say it's OK.

What bugs me is that between austerity measures and a flight of euros out of Greece, I thought extreme deflation in Greece was a dead cert.

Instead, we get an astonishing 5% inflation. I fear the Greeks have been taking the p*ss all along.

Edited May 24, 2011 by _w_

[interestrateripoff]

What bugs me is that between austerity measures and a flight of euros out of Greece, I thought extreme deflation in Greece was a dead cert.

Instead, we get an astonishing 5% inflation. I fear the Greeks have been taking the p*ss all along.

I think your seeing the slack in the system, no one takes the p155 out of the market, ultimately it will get you. It's impossible to run forever.

[scottbeard]

It does seem likely to me that Greece will default one way or the other, possibly followed by one or more other PIIGS, and this will give rise to another 2008-scale crisis that will also impact on the US and UK.

Unless I'm missing an elephant at the back of the room, I currently can't see how that can be avoided?

[_w_]

I think your seeing the slack in the system, no one takes the p155 out of the market, ultimately it will get you. It's impossible to run forever.

I wonder... I would agree with you wholeheartedly but a sovereign default in Europe is seen in some circles as something to be avoided at all costs. IIUC, the reasoning is that Europe's standing as a borrower would be affected for the next generation or two: only (destabilising) hot money would buy EU bonds, rates would be higher, etc. Since Greece is under the ECB umbrella, all of Europe would be affected.

[interestrateripoff]

I wonder... I would agree with you wholeheartedly but a sovereign default in Europe is seen in some circles as something to be avoided at all costs. IIUC, the reasoning is that Europe's standing as a borrower would be affected for the next generation or two: only (destabilising) hot money would buy EU bonds, rates would be higher, etc. Since Greece is under the ECB umbrella, all of Europe would be affected.

Are these circles bankers?

To be honest if we can't borrow for several generations then good we can run balanced budgets. However what will happen is that some European countries won't be able to borrow for several years.

[_w_]

Are these circles bankers?

Yes, mainly central bankers. They mighty have historical facts to back up their claims.

['Bart']

There is no plan to pay the money back, there is no plan to cut spending. The only option for Greece is to default.

But it's contained, right?

[Injin]

But it's contained, right?

To the planet Earth, yes.

[Laughing Gnome]

I wonder... I would agree with you wholeheartedly but a sovereign default in Europe is seen in some circles as something to be avoided at all costs. IIUC, the reasoning is that Europe's standing as a borrower would be affected for the next generation or two: only (destabilising) hot money would buy EU bonds, rates would be higher, etc. Since Greece is under the ECB umbrella, all of Europe would be affected.

But does the EU / ECB borrow money as such, as opposed to the various jurisdictions?

[_w_]

But does the EU / ECB borrow money as such, as opposed to the various jurisdictions?

The euro system is quite complex and opaque, I won't try to pretend I know much about it.

From what I understand the ECB is the conductor that manages all countries debt 'placement' and money supply, the individual countries CBs are like subsidiaries of the ECB.

Then again, we learnt not long ago that the Irish CB engaged in a bit of printing of its own, and I would be surprised if the Greek CB hadn't done the same.

[tennaval]

Paul mason article..........

" Looking back on the summer of 1914 Zweig wrote: "The worst of it was, the very thing we loved the most, our common optimism, betrayed us; for everyone thought everyone else would back down at the last minute and so the diplomats began their game of mutual bluff."

Common optimism is a value worth preserving; but so are realism and decisive action."

Paul Mason BBC

[CrashConnoisseur]

Vince Cable is getting his act together again I see.

Does he still think the euro is a good idea? I think we should be told.

[interestrateripoff]

http://market-ticker.org/akcs-www?post=186864

Here we go.....

"I am forced to speak openly," Damanaki was quoted as saying in a statement by the semi-official Athens News Agency. "Either we agree with our lenders to a programme of tough sacrifices ... or we return to the drachma."

Do it.

Here's what happens if they do:

The Drachma would be devalued against the Euro. Sovereign debt denominated in the Euro would be recast into Drachmas, instantly haircutting them by whatever the devaluation is.

The Eurozone folks will scream. No matter; what enforcement mechanism to prevent this do the ECB and Eurozone folks have have? None, other than an armed invasion. And therein lies the solution for Greece - their external debt which has become impossible to pay suddenly becomes payable, as it's cut by 20, 30, even 50% overnight. This is a forced restructuring crammed down the creditor's throats.

Greece is forced to cut spending to match their tax revenues as borrowing will remain prohibitively expensive. This has to happen anyway - everywhere, not just in Greece. Doing that is going to suck. There's no avoiding the fact that it is going to suck nor is what has to happen avoidable on an indefinite forward basis. The sooner Greece runs a primary surplus the sooner the damage stops compounding.

To those who claim this sort of adjustment is "unjust", please square it with what Obama did to GM bondholders, who were forced at government gunpoint to agree to a roughly 70% devaluation. I know, I know, it's a sovereign .vs. a corporation. Or is it, when a firm has been effectively nationalized? Hmmm....

Contrary to the screaming in the media and elsewhere, Greek banks survive this. Their currency is converted; they get "haircut" but only in purchasing power, not numerically (think about it.) On the other hand foreign institutions take it up the ass. French and German banks, in particular, are deeply exposed to this, as is the ECB itself. Is this enough to throw the chessboard to the floor? To calculate that you need to know what the actual leverage ratio is on these institutions and how much actual capital they have to absorb losses. Can you come up with those numbers and defend them? I can't, and I presume the reason I can't is that the "interested parties" want me to be unable to do so. I am therefore forced to assume that material numbers of large French and German banks would detonate if this happened.

The Greek people's standard of living gets hit. Hard. This is unavoidable too. When you make $20,000 and spend another $10k on your credit cards a return to spending less than $20,000 so you can pay down the debt, or defaulting on the accumulated debt, is inevitable. It is better to choose the "when" yourself than to have it chosen for you. This move by Greece would be a choice to elect "now" as the time to do that.

The CDS written against these bonds will trigger, of course. Who's holding that risk and do they have any money? We know the answer from the last time around on the second part - no, they do not have the money. Did any of the regulatory institutions fix this since 2008? We know the answer to that too: No, they did not. Therefore we must assume the money does not exist, the swaps cannot be paid, and much hilarity will immediately ensue. Oh, and I get to hoist the "Told You So" sign again. The regulatory authorities on an international basis deserve to be strung up by their toenails and pelted with rotten tomatoes for allowing the naked swap situation to continue to exist after 2008.

I'm looking forward to this. What I actually expect to happen is that Greece will "agree" to do more "tough things" and fail, there will be more and more threats, and eventually the Greek people will force the issue by simply refusing to work, either going on strike or worse, initiating a revolution. Then the tough choice will be taken because it will be either that or the government literally dies.

The simple fact of the matter is that the lenders who made this overleverage possible are just as responsible for this - if not more so - as Greece is. Lending money you know can't be paid back should result in you losing your investment. That it doesn't reliably do so isn't an indictment of the borrower, it's an indictment of the lender.

And now come the threats, pay back the bankers or else.

[interestrateripoff]

http://www.zerohedge.com/article/belgiums-dexia-about-be-first-greek-casualty

About a month ago Belgium's biggest bank, and as is now well known one of the most active borrowers at the Fed's discount window in the days following the Lehman crisis, issued €3.2 billion in FRNs with a two year maturity that had an odd feature: an ultra short term put feature (as the Bloomberg screen shows below, puttable June 26, 2011 at par) which can be exercised up to 33 days ahead of the put day (underwritten by Barclays, Citi and MS) or in other words, today. Well, as our source has told us, following recent downgrades of virtually all banks with Greek exposure (a topic further pursed by the below IFR article), the two largest investors in the bond: Blackrock, which owns the bulk or about €2.6 billion, and Barclays (among others) have exercised their put option. The speculation is that "either someone knows something or had a very rapid change of heart" and concludes that "this should make the whole funding thing relevant again" especially since banks continue to rely on the ECB exclusively for short-term liquidity needs. Also possible a jump in Fed Discount Window borrowings if the ECB is unable or unwilling to cross-collateralize even more Greek debt exposure. The advice: "start watching Libor/Euribor and the Forwards basis" for some near-term volatility. If this is confirmed, look for any/all other comparable short-term put deals to suddenly spring the investor option to pull their capital, and the domino avalanche to set off in earnest.

Still nothing that a bit more debt cannot fix. If only we create more debt for the Greeks to save them from the debt they've run up. Remember no repayment plan actually exists for any of this debt just the ability to roll it over.

[_w_]

http://market-ticker...www?post=186864

And now come the threats, pay back the bankers or else.

The statement was made by Maria Damanaki, (Greek) EU fisheries commissioner. Something's fishy I tell you.

[billybong]

It looks like Greece is likely heading back towards junta government.

[OnlyMe]

The simple fact of the matter is that the lenders who made this overleverage possible are just as responsible for this - if not more so - as Greece is. Lending money you know can't be paid back should result in you losing your investment. That it doesn't reliably do so isn't an indictment of the borrower, it's an indictment of the lender.

[interestrateripoff]

http://www.telegraph.co.uk/finance/comment/jeremy-warner/8536622/Its-ever-more-obvious-Greece-must-leave-the-euro.html

What's presently being played out among the GIPS (Greece, Ireland, Portugal and Spain) is final proof that you cannot have a monetary union of such size among sovereign nations without compensating fiscal union. That simple underlying truth leaves the euro facing a choice between two equally unappetising outcomes.

Either the richer countries carry on bailing out the poorer ones more or less indefinitely, rather in the manner that Germany subsidises its formerly communist East, or membership of the euro has to be reconstituted on a smaller and more sustainable basis. There's really nothing in between. The longer European policymakers remain in denial about this choice, the worse the situation will become.

Part of the entry criteria should have been balanced budgets with the threat of expulsion if you didn't. Although even that wouldn't have helped Ireland.

http://www.esri.ie/irish_economy/

See this jpg

It's clear the Eurozone had no real idea about how to manage a single currency.