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The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

Submitted by Reggie Middleton on 04/01/2010 09:13 -0400

On March 26, EU endorsed the proposal of extending aid to Greece (in
case it faces shortage of funds to meet the refinancing and new debt
requirements) wherein each euro nation would provide loans to Greece at
bend over market rates based on its stake in the European
Central Bank. EU would provide more than half the loans and the IMF
would provide the rest. The official estimates for the size of the
planned assistance have not been disclosed since it would depend on
Greece's actual need. Erik Nielsen, Chief European Economist at GS,
estimates Greece will need an 18-month package of as much as €25
billion, with the IMF providing about €10 billion of that. The French
newspaper Le Figaro reports that German officials are estimating the
total assistance of nearly €22 billion.

Taking advantage of the positive market response to the
announcement of EU-IMF taking up the role of the lender of last resort,
the government issued 7-year bond with no premium over the market
rates. However, the euphoria was short-lived. The 7-year
bonds which were issued at yield of 6.0% were trading at 6.27%, the
next day. The sentiment was also weakened by the poor response to
the surprise auction of 12-year bonds which attracted demand or order
book of just €390 million against the offered amount of €1 billion.
Judging by the fashion in which the market has accepted Greek debt as of
late, even after announcement of EU/IMG support, it is quite feasible
that the EU's offering of market rate loans is akin to shoveling money
down a black hole in terms of market valuation.

Greece's order book has been shrinking and reflects the waning
market demand for Greek bonds. The 7 year bond auction received orders
of just €6 billion, 20% higher than the offered amount of €5 billion.
This compared with orders of nearly €15 billion for the auction of €6
billion of 10 year bonds on March 4 and orders of nearly €25 billion for
auction of €5 billion of five year bond on January 25.

According to the government estimates, it needs to raise nearly €53
billion in 2010 to meet its refinancing needs as well as fund its
negative primary balance and interest expenditure. Out of this, the
government has so far issued bonds of only €18.5 billion through:

€8 billion of five-year notes on Jan. 26 at yield of 5.93% (381
basis points more than benchmark German debt of similar maturity)
€5 billion of 10-year bonds on March 4 at yield of 6.44% (325
basis points more than German debt of similar maturity)
€5 billion of 7-year bonds on March 29 at yield of 6.0% (310 basis
points more than German debt of similar maturity, immediately
traded underwater)
€390 million of 12-year bonds on March 30 at yield of 5.9% (auction
effectively failed
)

The next round of short term refinancing requirement consists of about
€12 billion in April and about €8.5 billion in May.

Market Reaction

While the initial reaction to the EU-IMF assistance announcement was
positive in the Greek government debt market and sovereign CDS market,
the optimism is receding. The yield on Greek 10-year bond dropped to
6.20% (spread of 305 basis points over German 10 year bond) on March 26
from 6.44% (spread of 337 basis points over German 10 year bond) on
March 22. However over the last three days, the yield is again trending
upwards and is trading at 6.52% on March 30 (spread of 343 basis points
over German 10 year bond). The 5 year Greek sovereign CDS spread dropped
to 295 basis points on March 26 from 341 basis points on March 22.
However, the same has been lately drifting up again and reached 333
basis points on March 30.

Increased interest burden - According to the data compiled by
Bloomberg and Credit Agricole, Greece may pay about €13 billion more
in interest on the debt it raises in 2010 than it would have if
yields had stayed at their pre-crisis levels relative to Germany's.
Interest on the three bonds it sold this year will amount to €7.7
billion over the life of the securities, compared with €3.8 billion if
they had sold them at the average extra yield, or spread, over German
debt that prevailed between 2000 and 2008, the data show. Greece will
incur a further €18.9 billion of interest on this year's remaining
issuance, compared with €9.4 billion before the crisis began.

We have (correctly) assumed such under our Greek public finances
projections of last month and have already built the increased interest
expense due to increased spreads against government expectations of
decline in interest rates. Subscribers, see
Greece Public Finances
Projections .I also recommends the
Greek Banking
Fundamental Tear Sheet for a list of affected banks and pro
subscribers should reference
Banks exposed to
Central and Eastern Europe.

Conclusions - The sustainability of Greece's public finances is
seriously hindered by the piling government debt and widening fiscal
deficits which were a result of poor fiscal policies. While Greece has
announced drastic fiscal consolidation measures, serious concerns float
around the implementation (after which, they will still have to content
with internal deflation and increased social unrest). The Greek
government's loss of credibility in the markets is reflected in the
rising sovereign spreads and dwindling credit availability. Further,
Greece competes for funds with other distressed sovereigns scrabbling to
fund their fiscal deficits and refinancing requirements. Greece is
walking the tight rope of arranging funds from the market to sustain its
public finances and has one of the highest probabilities of failure.

Tied together with the common currency, the EU has been forced to
provide assistance to Greece. Although the assistance would be invoked
only when Greece fails to garner funds from the market, the implications
of the assistance package will be the increased contagion effect of
Greek's sovereign risk to other EU countries (some of which are already
struggling with their domestic issues). The EU nations will be forced to
accumulate debt on their books to finance Greece's requirements at a
time when EU nations debt are already approaching historical
proportions. Greece's rescue would send strong signals about how the
sovereign risk of a member can be perceived as the risk of the EU, which
has failed to maintain oversight and regulation of the members' public
finance policies and has become jointly responsible for the poor
governance in a member country. Greece is not the only EU country in
trouble and the rescue can set a wrong precedent that can literally
redefine the concept of moral hazard in Euroland! If this short term
solution to the Greek crisis is applied to other troubled nations,
sovereign debt accumulation in the region would be become a serious
concern that would haunt the region for many years to come. Germany and,
to a much lesser extent, France (as of very recently) have been,
therefore, resisting the idea of putting the entire burden of Greece's
rescue on EU and have proposed IMF collaboration.

EU-IMF assistance would entail a series of strong conditions for fiscal
consolidation through reduced public expenditure, increased taxation
etc. which will have deeper macro-economic impacts and undermine
economic recovery for Greece.

For the complete Pan-European Sovereign Debt Crisis series, see:

1. The
Coming
Pan-European Sovereign Debt Crisis - introduces the crisis
and identified it as a pan-European problem, not a localized one.

2. What
Country
is Next in the Coming Pan-European Sovereign Debt Crisis? -
illustrates the potential for the domino effect

3. The
Pan-European
Sovereign Debt Crisis: If I Were to Short Any Country,
What Country Would That Be.. - attempts to illustrate the highly
interdependent weaknesses in Europe's sovereign nations can effect even
the perceived "stronger" nations.

4. The
Coming
Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western
European Countries

5. The
Depression
is Already Here for Some Members of Europe, and It Just
Might Be Contagious!

6. The
Beginning
of the Endgame is Coming???

7. I
Think It's Confirmed, Greece Will Be the First Domino to Fall

8. Smoking
Swap
Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer
Beware!

9. Financial
Contagion
vs. Economic Contagion: Does the Market Underestimate the
Effects of the Latter?

10. "Greek
Crisis
Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on
Fire!

11. Germany
Finally
Comes Out and Says, "We're Not Touching Greece" - Well, Sort
of...

12. The
Greece and the Greek Banks Get the Word "First" Etched on the Side of
Their Domino

13. As
I
Warned Earlier, Latvian Government Collapses Exacerbating Financial
Crisis

14. Once
You
Catch a Few EU Countries "Stretching the Truth", Why Should You
Trust the Rest?

15. Lies,
Damn
Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

16. Ovebanked,
Underfunded,
and Overly Optimistic: The New Face of Sovereign Europe

17. Moody's
Follows
Suit Behind Our Analysis and Downgrades 4 Greek Banks

Premium Subscription research for the following sovereign states and
their respective domiciled banks at risk are available for immediate
download.

LATEST SOVEREIGN DEBT CRISIS SUBSCRIPTION CONTENT

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Thu, 04/01/2010 - 12:49 | 283156 Monday1929

Does anyone know if I can have my tax refund check deposited directly into the IMF F/B/O Taxcheatgeithner?

Thu, 04/01/2010 - 12:33 | 283137 CookieMonster

Reggie,

Thanks for your hard work about the truth of these dealings. How would your analysis fare about PIIGS bailouts if more creative sources of funding for those bailouts are forthcoming? Banksters are hell-bent on inflating this economic bubble. What if the FED, IMF, ECB, Chinese and Japanese all banded together and created backdoor "conduits". Aren't there now any manner of ways to funnel money from one entity to another? Backstop and inflate just like the FED is doing here in the USA, therefore, crises gets papered-over and the markets can confidently keep going up!!! Banksters really are in control.

To quote you, "Greece is not the only EU country in trouble and the rescue can set a wrong precedent that can literally redefine the concept of moral hazard in Euroland!", to which I now think, "So what!". Really. So what that moral hazard increases??? Cooperation between Banksters around the world has made moral hazard a moot point. What they WANT is an excuse to push us towards "Global Governance" and your point quoted above gives them that very excuse to cooperate behind the scenes to help each other - bailouts, backdoor conduits, whateverittakes! They want to take over the WHOLE system, the more bailouts, the better. The more the FED and IMF and others are forced to get involved, the better.

ALL OF US WHO BELIEVE IN TRUTH AND MORALS ARE THE APRIL FOOLS!!!

Thu, 04/01/2010 - 12:41 | 283150 Reggie Middleton

Imagine there are 10 of us in a room, each with $100. One of us loses $75, two lose $30 and 3 lose $10, while 2 make $5 and the other breaks even. Now, there is a significant amount of money missing, and each person needs $75 each to pay their food and rent.

The job prospects for the next year are negative, and they all expect to lose at least a little more money. Oh yeah, we all depend on each other for our business and trade.

Exactly how will shuffling around a few dollars between us solve the problem, back door, front door, through the window, or otherwise?

Thu, 04/01/2010 - 15:47 | 283440 CookieMonster

Reggie,
Thank you for the reply and I very much appreciate the analogy. In a closed system, everything comes out as equilibrium somewhere down the line. But what does that system look like in the end (how has it been transformed)? A few owning everything and the majority owing everything to the few. Just like in your analogy, the Banksters want the system to go bust so that they can own everything. Notice who ends up with all the debt obligations - the taxpayers. It is not the honest people who live in freedom, it is the Banksters. It is not just that shuffling a few dollars helps anyone, it is that shuffling the massive amounts of debt onto the populace is a means to an end - Global Governance, which is one step removed from a One World Government. Serial bubbles which lead to serial bailouts through any means possible makes perfect sense in light of the fact of the end game in mind.

The sheeple are fools (going back to our April Fools theme) because there is very little way now for this end game to be thwarted. Shedding as much light on it is helpful but it is not good enough to stop it. What you are doing (and it is a monumental step forward) is only the first part of a larger puzzle of how to stop it. There needs to be change in the spiritual and moral fabric of society to then have the guts to stand up against it. Else, the politicians will continue to sell our collective souls to the Beast of debt in perpetuity. The point of no return is FAST approaching.

So, to answer your question, how will shuffling dollars help anyone, I think you miss the point and need to go beyond number crunching (again, a great first step). People who have the means have to mobilize the population to be educated about what we can do about the end game in mind by the elite who want to take over the system. Starving the Beast would be a good next step....
CM

Thu, 04/01/2010 - 13:27 | 283210 Edmon Plume

Well, at least they can count that money movement for GDP, right? ;)

Thu, 04/01/2010 - 12:23 | 283052 wyosteven

The joke is on you Reggie. Greece was already bailed out (off balance sheet of course!).

Now we're simply figuring out how to distract from the truth and deny accountability by coming up with some "other" cook-the-books and reward failure crock of shit in order for those who failed to win twice.

How many criminal convictions have there been (world-wide)? One?

Thu, 04/01/2010 - 12:34 | 283139 Rogerwilco

You say the Greece bailout was "off balance sheet", so which entity is hiding the weenie (or, if you prefer, holding the bag)? The IMF claims it's not them, so who is it?

Thu, 04/01/2010 - 18:11 | 283620 wyosteven

Good question. My first guess is the entity where many financial weenies are hidden -- Bawney Frank.

Second guess is where all the rest go -- US Taxpayer (those that actually pay taxes).

The EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

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