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Erik Nielsen's Morning Greek Update, More Vivid Imagery As Loaded Gun Becomes Full Fire Extinguisher

Tyler Durden's picture


From Goldman Sachs' Chief European Strategist:

European Views: Summary of where we stand – and what remains to be done on the Greek package

1.  Following weeks of political statements of support from European leaders (which failed to calm markets), Greek PM Papandreou telephoned the EU presidency on Thursday night to ask that the offer of help gets specified in terms of size, terms and conditions.  On Saturday he told his domestic audience in an radio interview that “the question remains whether this mechanism will convince markets just as a gun on the table.  If it does not convince them, it is a mechanism that is there to be used.”

2.  To stay with the terminology, the European political leaders had been telling investors for weeks that there was a gun somewhere, but they never specified how many and how powerful bullets would come with it, or what the conditions would be for them to hand it over the gun to the Greeks.  (Our view through all of this was that they would end up having to load the gun and actually fire it towards the end of April so as to avoid payments problems in May.)

3.  Yesterday, the Europeans neither loaded the gun, not did they hand it over to the Greeks.  But they did show us the bullets – and there were indeed more of them than I had thought there would be.  Potentially EUR30bn for the next 12 months (in three year loans at about 5% interest rates), and up to EUR15bn from the IMF over a three year period.  Unidentified officials have suggested that the EU might end up offering more money beyond the first 12 months.  While impressive in size, these numbers fall slightly short of the Greek government’s estimated financing requirements, which we see at EUR51bn for the next 12 months.  If the government’s fiscal plans can be implemented, then their financing requirements will be about EUR104bn (plus about EUR10bn in short term roll-overs) for the 2011-13 period.

4.  Today, negotiations with the IMF starts in Brussels on their component, including the conditionality of the whole thing.  This will be particularly important for the assessment of the longer term sustainability.

5.  For the gun to get loaded, the 15 national parliaments (EMU, excluding Greece) will have to approve the individual loans that add up to the EUR30bn, and the IMF needs to agree on a stand-by, which has economic policy conditionality attached, and will make the first tranche of the three-year EUR15bn (or so) program available.

6.  For the Greek to fire the loaded gun, they’ll have to ask the Europeans to activate the loan, and the Commission will then verify that its justified.

7.  In summary, things progressed more than expected over the weekend, and we are now pretty close to a place where money could be disbursed if there were to be a run on the system.  I am still thinking that it’ll be late April before the gun gets fired and the first money starts to flow – but the details of that timing is sort of irrelevant.  As we have long expected, the liquidity crisis associated with April-May will be dealt with, while the longer run solvency (debt sustainability) issues are still there.  Importantly, however, if the official sector really were to fully fund the Greek government for the next 3 years at an average interest rate of 4%-5%, then they’ll become the most exposed to the sustainability issue, unless, of course, they manage – formally or informally – to make their loans senior to private creditors.  The next few weeks will provide more clarity on this.

And for those wondering just how much of a bailout this weekend's event are in German eyes, here is Market News with quotes from the German Finance Minister throwing cold water on optimists. The problem, of course, is that the "sell the news" part of today's market action may be delayed, as there is no news really. Which means 17 out of 18 up Mutual Fund Mondays awaits.

Greece will only receive financial aid from its Eurozone peers if it cannot meet its funding needs on financial markets
anymore, the German government stressed on Monday.

“This decision position remains unchanged,” government spokesman Christoph Steegmans said at a regular press conference here.

Finance Ministry spokesman Michael Offer said at the same press conference that “we don’t hope and don’t expect that the case [of Greece needing financial aid] will really occur.”

Steegmans compared the Eurozone aid package to a fire-extinguisher. “That the fire-extinguisher has been filled up now doesn’t say anything about the likelihood of a fire,” he reasoned.


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Mon, 04/12/2010 - 09:19 | Link to Comment nonclaim
nonclaim's picture

That the fire-extinguisher has been filled up now doesn’t say anything about the likelihood of a fire,”

or the type or size of the fire. Up to now they only tried hot air and it isn't helping much.

Mon, 04/12/2010 - 09:20 | Link to Comment SWRichmond
SWRichmond's picture

Is that a bazooka in your pocket or are you just happy to see me?

- Hank Paulson

Mon, 04/12/2010 - 09:23 | Link to Comment Sqworl
Sqworl's picture

It's no polite to point with your pants!!!...:-)

Mon, 04/12/2010 - 09:52 | Link to Comment pdr
pdr's picture

I am so bored of this story.....These guys are bailed out man- deal with it- there's no way the German banks are going to take a 35bn hit on their Greek bond positions- cos the German taxpayer will have to write a big fat check and hand it over to their banks again- and thats a bail out for real- and least now they can borrow at 2% and lend at 5%

Mon, 04/12/2010 - 10:06 | Link to Comment read_invest
read_invest's picture

Zero hedge comes up with all the negative news from financial world. .while market keeps rising.. why don't you have some news which is in sync with market movement?!!!!

It doesn't help any one make money or profit. just promotes fear


Mon, 04/12/2010 - 10:12 | Link to Comment nonclaim
nonclaim's picture

We are not here to help you make money.

Mon, 04/12/2010 - 10:26 | Link to Comment sweet ebony diamond
sweet ebony diamond's picture

we would like to expose the blowhards (sorry i mean investment bankers) and get the taxpayers money back.

please tell that to mr. paulson & co.

Mon, 04/12/2010 - 10:30 | Link to Comment Village Idiot
Village Idiot's picture

What are you talking about?  The "ZH baby" on the home page is practicaly falling off its seat - it wants  to help you turn 10K into 2.7m.  What more could you want?  Ingrate.

Mon, 04/12/2010 - 10:47 | Link to Comment Marzen
Marzen's picture

whut? did you actually took time to create a user ID on here?
What did you think this place was? Mad Money? No Jim Cramer here.

Mon, 04/12/2010 - 11:55 | Link to Comment Carl Spackler
Carl Spackler's picture

Huh?  Zero Hedge "promotes fear"? 

Are you living in a cave? Or are you some romantic, political thinker type (i.e.,  leftist) and completely out of touch with the ongoing functioning of capital markets?

The fundamentals are what they are...severely impaired.

Not exposing them for what they are is called "lying to one's self," which promotes the build up of an even greater asset bubble, and the greater the bubble, the more painful the burst and long-term damage done.

What is needed now is responsibility and self discipline to get out of this economic mess, and that starts with calling a spade a spade.  In other words..."Get a set"

Mon, 04/12/2010 - 12:56 | Link to Comment sheeple
sheeple's picture

"why don't you have some news which is in sync with market movement?!!!!"

-You could catch that on CNBC and CNN


".while market keeps rising.. "

-Dude did you just graduated from business school or something?


"It doesn't help any one make money or profit"

-you access financial blogs to learn to profit from the market? do your own research and analysis


"just promotes fear"

-Promotes facts

Mon, 04/12/2010 - 13:20 | Link to Comment seventree
seventree's picture

Enough already, all you nattering nabobs of negativism. It will be on your heads if Tinker Belle dies.

Mon, 04/12/2010 - 10:29 | Link to Comment ignorant
ignorant's picture

 Hi mates, why that fumes coming out of your nostrils ? calm down its only monopoly

Mon, 04/12/2010 - 10:41 | Link to Comment Kina
Kina's picture

The American economy is in a strong recovery, buy shares.

Meanwhile back in the real world which may be a better thing to base investment decisions really is a bit negative.


Mon, 04/12/2010 - 11:33 | Link to Comment glenlloyd
glenlloyd's picture

put the loans in the basket or it gets the (fire) hose.

Tue, 04/13/2010 - 01:22 | Link to Comment Privatus
Privatus's picture

The Greek state needs more credit like an addict needs another hit. It might as well put the "gun on the table" to its own head. If only. And where do these statist assholes get off speaking in violent symbology when they are at the mercy of the market? Line up. Put your collateral on the counter. Move to the left. And wait for our terms or NO CREDIT FOR YOU!

Do NOT follow this link or you will be banned from the site!