Germany Sets Greek Restructuring Deadline: End Of Summer

Tyler Durden's picture

In a very unstunning development which would expose all those Greek and EU proclamations about a solvent Greece for another relentless barrage of lies, it appears that Germany is now resolved to not only restructuring Greece (and with certain Greek bonds trading around 60 the market has effectively thrown in the towel), but has provided a timeframe in which this should occur: "German government sources said on Monday Greece will likely restructure its sovereign debt before the end of summer, putting a time frame to recent speculation that sent the euro to its lowest in two weeks. "Decisive voices within the federal government expect that Greece will not make it through the summer without a restructuring," one high-ranking coalition source told Reuters. "That does not mean that the federal government is striving for (a restructuring) but such a step will probably not be avoidable," he added, echoing views from other coalition sources." Supposedly the thinking in Europe is that banks should have built up a sufficiently large capital buffer to where the permanent impairment of Greek senior debt will not lead to another bank run. The question however is how well has Europe considered any other unpredictable consequences, which by definition, are "unpredictable." Recall that the financial system nearly ended after the Lehman bankruptcy following the freeze in money markets: a side effect that nobody had expected at the time. What will happen this time around when Greece becomes the first "Lehman" in the sovereign realm, and just how many trillions will have to be invested to undo "unforeseen" consequences?

More from Reuters:

The sources did not say what sort of pressure, if any, would force Greece to change its oft-repeated stance that it would not seek to restructure its debt.

They did not specify the form a restructuring could take.

The comments sent the euro to its lowest level against the dollar since April 7, according to Reuters data.

Athens on Monday reiterated it had no plans to restructure its debt, a move its central bank chief said would be catastrophic, but markets continue to speculate that some form of restructuring is on the cards.

The IMF, European Central Bank and European Commission will examine in June whether Greece has met the prerequisites to receive the next tranche of its 110 billion euro bailout package.

In an interview in Die Welt published last week, German Finance Minister Wolfgang Schaeuble said "additional steps" would need to be taken should the progress report in June conclude there are doubts about the fiscal sustainability.

Schaeuble added then, however, that any restructuring would have to be voluntary if done before 2013.

Either way, once can safely predict that should Greece be restructured by the end of August, then Portugal and Ireland will certainly be in the same camp by the end of the year as popular anger at inequitable treatment threatens the local political regimes. The only question is whether this upcoming peripheral Tsunami (which will also most likely require the bailouts of Spain and Italy) will also pull the core into the vortex. Regardless, the experiment in EURUSD levitation on nothing but bad news is about to end with a thud.