"The ECB Would Like To Thank The Academy" - Here Is What Happens After Greece Defaults: (The PG-13 Theatrical Version)

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A few days ago we presented a realistic, if somewhat somber, outlook of what would happen when (not if) Greece finally pulls the plug on its vegetative existence, and its paralyzed body will no longer serve as a breeding ground for maggots of the financial innovation variety. Today, we present a far more comedic one, courtesy of the ECB's Christian Noyer, who makes it all too clear: Europe is not in it to bail out itself and its banks which would topple like a house of undercapitalized, under-MTMed, and uber mismarked cards, but only to protect those poor sad souls of Greece from the "Horror" that would be unleashed when a Greek free fall bankruptcy finally arrives. Truly, the humanist ECB is doing god's work on earth. Try not to laugh while reading this.

From Bloomberg:

The first section constitutes a statement made by Noyer.
The remainder is from a question-and-answer session. Noyer spoke
in French.

“If we restructure Greek debt, that means Greece

“And what are the consequences of a default? The banks
with the most Greek bonds are Greek banks. The Greek banks
themselves will be badly damaged. When the banking system is
stricken, what do you have to do to prevent the financing of the
economy from collapsing? You have to recapitalize the banks. Who
will recapitalize the Greek banking system? The Greek state.”

“That means the Greek state will gain nothing. It will
invest in the banking sector everything that it has gained in
the restructuring.”

“Next there are the Greek insurers and pension funds” who
will be hurt. “That means it will weigh on the Greek
population’s savings, which could cause a drop in consumer
and Greek growth will take a hit. This counters the
Greek recovery.”

“Then, what else is there in terms of Greek creditors?
There’s the European public sector, European governments and the
central banks. This is directly tapping the European taxpayer.”

“If we make European states pay, the mechanism of European
financing will stop immediately. The states will not continue
putting their taxpayers’ money on the line when their loans have
just been cleaned out, when they’re taking losses on the money
they’re lending. So that’s the end of support from other
European states.”

“And for the central banks, what happens? Greek debt will
become debt that is no longer worth anything. It’s no longer
debt that can be considered as sufficiently safe for operations
in the Euro System. That means by definition that to restructure
is to become ineligible as collateral. If it’s ineligible, then
it means a large part of what the Greek banks bring as
collateral for refinancing can no longer be used. That means the
Greek banking system can no longer be financed.”

“The next day what happens? Greece needs to find investors
because the Greek state won’t move from deficit to surplus
overnight. As long as it doesn’t have a primary surplus, the
Greek state needs to borrow. International investors, that small
group that remains, have just been restructured. It’s not the
next day they’ll come back with financing.”

“The Euro System won’t refinance. The European states
won’t finance. The IMF won’t go there alone. No one will finance
the Greek state in coming years. That means the meltdown of the
Greek economy. This is a horror story. That’s why we’re against
a restructuring.”

On rescheduling of debt:

“The lengthening of maturities brings very difficult legal
questions. There’s a strong chance it will be the equivalent of
a default.”

On austerity, asset sales:

“There is another possibility, which is to apply the
program. To reduce the stock of debt, the only solution is
ambitious privatization. There is no other solution.”

“When we’re in a monetary union and you need to restore
your competitiveness, it is necessary to have the equivalent of
an internal devaluation. Cut production costs. There is no other

“The budget adjustment that is being asked for -- they’re
difficult measures but they’re doable. The IMF has been doing
these programs for years. It knows what is doable.”

“Restructuring is not a solution, it’s a horror story. You
have to make decisions that are in the interest of the country
and its citizens. The best option is the program.”

“Time isn’t a way of lightening the program. A bit more
time may be necessary. The program might be longer. The measures
are necessary in any case. It’s the same effort over more

“We won’t convince other European countries or the IMF to
provide support unless there is a strict application of the

On the ECB refusing Greek debt as collateral:

“What is the fundamental principle that we have to
observe? We must, in monetary policy operations, refinancing,
take sufficient guarantees. All the central banks of the world
do this. You need good-quality collateral. You set the bar at a
certain level. We took a simple rule. You need single-A debt as
a minimum.”

“During the crisis, given pressure on assets, we accepted
temporarily to reduce our minimum level of collateral to BBB.
Then the sovereign-debt crisis arrived, the Greek crisis,
ratings cuts for Greece.”

“We decided at that moment that when there is a European
Union-IMF program that we support, we considered” the assets
“were the equivalent of BBB. If the program is no longer
respected, if a country is found off track, immediately our
assumption of BBB disappears. If it goes out of the EU program,
the collateral is ineligible.”

“If the debt is restructured, you can’t say it’s debt of
good quality. We need collateral of very good quality [quick someone, what is Greece rated now by S&P/Moody's?]. It’s a
simple application of reasoning. Ipso-facto, the collateral can
no longer be accepted.”

And the absolutely For The Win:

“Don’t think for a minute that we’re against
restructuring because French and German banks have Greek bonds.
The problem is for Greece itself.”

The ECB would like to thank the academy... and the children. Now, for that Geodon...

h/t Gwilym