EUR Tumbles As Juncker, De Jager Say Selective Greek Default Still Possible; European Economic Data Deteriorates

Tyler Durden's picture

When observing the latest "hope" based rally in the EUR last night we said that we "can't help but be extremely skeptical that this short-lived bounce will promptly reverse." Sure enough, 8 hours and 110 pips lower, this appears to have been the case driven primarily by remarks by Eurogroup president Jean-Claude Juncker and Dutch FinMin Jan Kees de Jager, both of whom said that a selective Greek default "cannot be excluded." Specifically, Dutch Finance Minister Jan Kees de Jager said on Thursday he had seen willingness at the European Central Bank (ECB) to discuss the possibility of a selective default on Greek debt. "The ECB is continuously involved in talks about private sector involvement... We have recently seen some room at the ECB to discuss this topic. This is something different than a credit event. I am talking about a selective default," De Jager told the Dutch parliament. Juncker said essentially the same thing earlier, which precipitated the EUR tumble, as this shows that with the summit starting (11 am GMT), once again nobody in Europe has any idea what they are doing. Furthermore, horrible PMI data out of Europe (following last night's Chinese contraction) overnight certainly did not help. And lastly, a Spanish auction of 10 and 15 Year bonds for which the country had to pay record prices even as the Bid To Cover barely moved (and in the case of the 10 Year declined) also took away from any risk on sentiment.

From Reuters:

The euro dived on Thursday after Eurogroup President Jean-Claude Juncker was quoted as suggesting a selective default for Greece was possible, prompting investors who had bought the euro in anticipation of progress at a European summit to cut their positions.

A media report quoted Juncker as saying a selective default for Greece could not be excluded, and sent the euro crashing through stops at $1.4235-40, and then through further large stops below $1.4200.

"The market was long and is quite nervous. This talk of the possibility of a default and the package not being quite as neat as people expected from a banking point of view is not helping," said Sebastien Galy, FX strategist at SocGen.

"There are a tremendous amount of leaks coming through but most of the information we already know. That means technical levels are very important right now."

Fears that Greece's debt crisis will spread to bigger economies in the euro zone have kept markets on edge since early July, with yields on Italian and Spanish government bonds reaching euro zone lifetime highs above 6 percent.

Few details of the common Franco-German position were revealed, but competing proposals on how to involve the private sector and avoid triggering a Greek default have been circulating.

And while taxpayers continue to be on the hook , it took about 12 hours for the proposal to tax banks to cover the cost of the bailout to be promptly swept away:

Sources told Reuters on Thursday that a proposal for a banking tax to cover the cost of the bailout had been ruled out.

There is, of course, hope:

Market players said with the market now short ahead of the summit, there was potential for the euro to get a better bid in reaction to any news of progress from the summit, but the euro remained vulnerable to a selloff if the details failed to convince investors.

"Anything that comes out needs to be really convincing to limit the risk of contagion to Italy and Spain which has materialised in the last few weeks," said Derek Halpenny, currency strategist at Bank of Tokyo-Mitsubishi UFJ.

Elsewhere, German PMI came at 52.1 on consensus of 54.1 as Germany is slipping dangerously close to following China into contraction. This was followed by weak Euroland PMIs across the board. Per Goldman Sachs:

A clear loss of momentum

  • The manufacturing PMI stood at 50.4 in July after 52.0 in June, while the services PMI declined to 51.4 after 53.7. The composite PMI is now at an index level of 50.8 after 53.3.

 Bottom line: Weak headline figures with the forward looking parts of the surveys even weaker. Current level of the PMIs are now consistent with growth of around 0.2%/0.3%qoq at the beginning of Q3.

The services and manufacturing PMI both came in weaker than expected and the downward trend seen since March continues in both cases. The 'new orders' and 'new business' sub indices of the surveys also recorded another decline, pointing to further weakness ahead.

And completing the trifecta of data pushing the EUR lower was the Spanish bond auction. The results:

  • 10-yr auc avg yld 5.896% vs 5.352%, bid/cover 1.90 vs 2.13
  • 15-yr auc avg yld 6.191% vs 6.002%, bid/cover 2.08 vs 1.97

More from Reuters on why this indicates that Spain will soon follow Italy into austerity:

Spain paid euro-era record high rates to sell two long-term bonds on Thursday before European leaders meet to try and put a line under a debt crisis that threatens to tear into the bloc's larger periphery countries.

Spain sold 1.8 billion euros ($2.6 billion)of a 10-year bond, and 814 million euros of a 15-year bond, at the top of a low Treasury target of 1.75 billion to 2.75 billion euros.

But fears that Spain could be next to sink into a debt crisis that has already seen pushed three euro zone countries into bailouts forced the Treasury to pay hefty yields to investors.

European leaders will meet later to agree on a second rescue package for Greece and also other measures aimed at stopping the rot spreading further.

"In the long run, these are pretty punitive funding levels for Spain," said Marc Ostwald, strategist at Monument Securities, who said the auctions had at least gone reasonably well.

Analysts warn that such rates will not be sustainable for Spain over a long period, and one said if the rate on the 10-year bond went much higher it would spell trouble.

"If it gets closer to 7 percent things can turn very ugly," said a director at a major bank with links to the Treasury.

All the remains is for DC to announce that there is actually no debt deal in DC, and this week's hope-based rally will be completely destroyed.

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j0nx's picture

Selective default, partial default. Is that like being kinda pregnant? Just so I know and can follow along...

Going Loco's picture

Selective default means you admit selectively to those partial aspects of default you think will not trigger any CDS obligations on the part of the by now wholly insolvent and somewhat elusive counterparties. But you do not admit to breach of any conditionsof the original instrument, breach of which would constitute not a partial default but a full default. Like, for example, the obligation to pay interest in the originally stated currency, on time and in full, or the obligation to repay the principal, in the originally stated currency, on time and in full. 

Watch for get-outs like "We will pay you your interest on time but you must immediately subscribe the interest payment into a new zero-coupon undated sovereign bond". 

Japes apart, I don't see how anything other than full and complete performance of all the original conditions of the instrument can be anything other than a plain vanilla default.

Sudden Debt's picture

More like 2 guys who fucked a girl and when she's pregnant, they'll blame each other about who first came up with the idea NOT to wear condoms.



Doctor Goldman S. will figure it out who's the father, but that will cost billions and billions in fees.


Hammer Time's picture

Yankees the Hunter...

rajat_bhatia's picture

Selective Default Bitchez!!!

scratch_and_sniff's picture

The ECB should take a leaf out of the feds book, and just keep stum.

slaughterer's picture

Can anyone clarify what will be "selective" in this default? 


Azannoth's picture

Private individuals will be hosed, institutions will be saved what else

I cannot wait to get out of this crapper soon enough

Josephine29's picture

As usual we are getting a load of waffle from Euro zone leaders that on their past history will put us on the road to nowhere! For a logical analysis and critique of likely proposals here is a link to the views of notayesmanseconomics.

In any Franco-German rescue plan for Greece the European Financial Stability Facility is likely to take centre-stage

GeneMarchbanks's picture

Investing on Hope,eh?

I'd rather speculate on Dope.

slaughterer's picture

Would have expected PM futures to jump on the meme "selective default" but they were relatively stable when compared to EUR/USD. 

Ethics Gradient's picture

I would have expected the EURCHF to tank. In fact it's getting stronger.

Xerox will want to renegotiate their servicing contract with the SNB. Their printers must be getting ruined.

GeneMarchbanks's picture

Quality clip, much appreciated. How high up do you think their apartment was? Pun intended.

oogs66's picture

the plan will be a waste, just a question of whether market figures it out immediately or rallies for a week first

papaswamp's picture

Pimpco usually does the opposite of what they say. Very Sun-Tzuesque.

Aductor's picture

Not to worry. Ignorant US traders will focus on domestic (!) backwardlooking coorporate earnings and reassure themselves that everything is just... fine.

Quintus's picture

Almost live coverage of the latest developments and rumours surrounding the Eurogroup meeting from the UK Telegraph here:

slaughterer's picture

Looks like PMs are catching up to the Junker meme now. 

Expect a final statement from eurocrazies later today. 

chump666's picture

let the chaos begin...spanish auction was a nice pre-curser

El Hosel's picture

...oops, sorry about that.

Euro has not priced in much of a default yet has it?

El Hosel's picture

  Nobody cares about zombie bankrupt countries, banks, or currencies. Let the good times roll, print money and rig the "markets".

El Hosel's picture

  Nobody cares about zombie bankrupt countries, banks, or currencies. Let the good times roll, print money and rig the "markets".

virgilcaine's picture

bank haircuts coming.

buzzsaw99's picture

there's a first time for everything i suppose.

Fazzie's picture

 If all the Euroland bungling beaureucrats would simply STFU and at least get their propaganda act on the same page, it would help.

 Each one of them is so full of hubris and think their official statements are so clever that they will outsmart the market to help their latest scheme succeed.

  The "bank tax" was put out there as if it was real for example.

 "Selective default" "bond buyback" and all that crap that is either supposed to sandbag or soothe the markets only to change in hours really isnt helping as the market will call any bluff short of an all out trillion dollar bailout like the last go around.


   All the market wants them to do is STFU and get to printing, only in the central planners mind does a market exist that can be talked up at this point when the shit is hitting the fan.

  But no, each one of the idiots just loves to call a press conference thinking that if only their statement is clever enough it will make the problem easier to solve.

Troy Ounce's picture


Etymologically, the word "Yankee" seems to derive from Jan-Kees.

"1683, a name applied disparagingly by Du. settlers in New Amsterdam (New York) to English colonists in neighboring Connecticut. It may be from Du. Janke , lit. "Little John," dim. of common personal name Jan ; or it may be from Jan Kes  familiar form of "John Cornelius," or perhaps an alt. of Jan Kees,  dial. variant of Jan Kaas,  lit. "John Cheese," the generic nickname the Flemings used for Dutchmen. It originally seems to have been applied insultingly to Dutch, especially freebooters, before they turned around and slapped it on the English. A less-likely theory is that it represents some southern New England Algonquian language mangling of English . In Eng. a term of contempt (1750s) before its use as a general term for "native of New England" (1765); during the American Revolution it became a disparaging British word for all American native or inhabitants. Shortened form Yank  in reference to "an American" first recorded 1778."

platoslast's picture

This pullback was telegraphed. I am still looking for a rally into next week. The noise has very little to do with the price action. Indicators are weak and over sold...nuff said.

Sudden Debt's picture

Total costs of a "selective" default are now 460 BILLION EURO!

So when all the corpses fall out of the closet, it will be 1 Trillion for sure.

And the loss for the stockmarket because of dropping banks and insurance companies will be about the same.

Add a cooling German economy and a cooling Chinese economy and:




gwar5's picture

"Selective Default" -- the elites of the Bozopean Union are still playing with euphemisms. It's the EU that is selectively defaulting.

From what I've read in the comment sections of Euro blogs, the masses continue to turn against the EU. They're using the M-word, "marxist", and "collectivist" descriptions to blame the EU architects for creating the mess (apparently these are not just American slurs anymore). Seems the looming sovereign defaults have made the them acutely aware their democracy is being trampled by the jackboots running the EU banking union. 

Backlash, Bitchez.

"You are very very dangerous people, indeed." -- Nigel Farage, to the EU members


tom's picture

"selective default" generally means paying in full and timely on some debts, not on others

As I understand it this swap is only for GGBs maturing within 8 years.

Also it's apparently going to be somehow coerced but not 100% mandatory, so some holders will presumably refuse, hoping to be paid in full. eg the Greek banks, as long as the Eurocash keeps coming, they could get try and get away with that.

glenlloyd's picture

They can (insert descriptor) default all they want, the RA's have said that if the end result is anything different from what buyers signed up for then it's an event.

El Hosel's picture

Selective default,selective bailouts,selective enforcement of the law.... When our leaders select  widespread corruption and systematic abuse over the best interest of the country we have a selective  clusterfuck.