Germany's Big Fat Greek Debt Restructuring Plan...Lie?

Tyler Durden's picture

Europe is abuzz this morning following a Die Zeit article indicating that Germany was planning for a Greek debt restructuring, one that would allow Greek to retire debt earlier than expected. From Market Watch: "The German and Greek finance ministries on Wednesday denied a report in
the German weekly newspaper Die Zeit that the German government was
weighing a plan that would allow Greece to retire some debt early, using
subsidies from the European Financial Stability Facility, Dow Jones
Newswires reported. Spreads on Greek credit default swaps, or CDS,
initially widened but then narrowed after the Die Zeit report was
denied." And while everyone is of course immediately denying that the EFSF is nothing but one big ponzi vehicle, which it would turn out to be should this report be proven true, Goldman's Dirk Schumacher has released two notes which confirm that this is indeed precisely the plan. And just as Goldman dictates US fiscal and monetary policy, so its European strategists are critical in determining European pyramid, kick the can down the line plans.

Specifically, Schumacher's first note:

Newswires cite an article from Zeit newspaper that reports about plans of the German government to change the “mechanics” of the EFSF such that the facility lends money – at low interest rates - to countries which can be then used to buy back debt. Such a debt buy back at market prices would imply a reduction in the overall debt level of the respective country.

The proposal itself is nothing new, though the Zeit story suggests that the German government now thinks that such a debt buy back could be indeed part of a reform of the EFSF. What it also shows, is that Euro-zone governments are obviously thinking along many lines and are discussing all different models how to change the set up of the EFSF.

As a reminder the EFSF is nothing but one big structured product (CDO), allowing it to receive a AAA rated rating from the rating agencies, and as such any possibility of complete AIG-like devastation is most certainly excluded.

Here is part two of Dirk's observations:

As I mentioned in my Sunday note (this past Sunday), this – ie the possibility for the EFSF to start buying debt in the secondary market – is indeed on the agenda.  There are lots of remaining outstanding issues to be sorted, but I would be surprised if its not included when the full package is revealed, probably in March.
If implemented, this will ease the need for ECB purchases, but there is no reason to think that it’ll reduce the net demand from official sources for sovereign debt.  Ought to lead to some spread compression.
And what will the ECB/EFSF do with the sovereign debt on their books?  My suggestion (which I am pushing around) is that they’ll one day sell it back to the sovereign debtor at cost (against conditionality), thereby providing Greece etc with some (if not all) the debt reduction they’ll need.
Stay tuned – the fixing of the Euro-zone problems is still in the early stage of being worked out, and trial balloons will continue to be sent up in coming weeks, and the impact could be huge.

Of course, the spreads jumped when the news was announced, and compressed only after the refusal, meaning that the charade game in Europe is alive and well. Additionally, we can't wait until the same structured credit product that led to Europe's insolvency is the very same that is now supposed to "fix the Euro-zone problems."

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HelluvaEngineer's picture

Good thing that Europe is saved every morning, and 8 billion or so of POMO gets funneled into the US markets everyday, or we might see a selloff in my lifetime.

Any chance the Bernank can buy Jobs a new liver?  Maybe we can give him a new liver every morning.

StychoKiller's picture

The Bernank will simply activate the Human Organ module on the printing press. :>D

hugovanderbubble's picture

Distribution time...profit taking from december....or september , be cautious if long.

Sudden Debt's picture

The timer is set between 4 to 5 weeks.


Let me tell you something about European politics.

The mentality:

A. You don't put out a fire UNLESS your house starts to burn.

B. A problem should only be addressed when the problem presents itself or solved itself (but still take credit for it).

C. 1 euro for you, 5 euro for me.











EscapeKey's picture

Talk is cheap. I'll believe it when I see it.

Oh regional Indian's picture

Nice irony from Helluvaengg above.

But it is clear to all and sundry that can-kicking, own-debt-buying and sheeple shearing is the plan, stan. No surprise. With so much on the line, in terms of how much the sheeple are sheared every single day, makes sense that the can kicking enriches the rich every day they gain.

If it is still not clear that only an epochal event will bring this house down and that it is either known of or being planned, then I suggest a deep study of th estate of the world.

Read a fascinating thesis today as to why Oil could be $220 dollars a barrel before long. The great Middle-east Shia-Sunni wind-up. 

All this mutual junk-scratching will seem like chump change in comparison. 

Prepare accordingly.


Sophist Economicus's picture

I get it.  

Have a bunch of governments 'buy' a troubled government's debt, with a new, low interest debt, so that the troubled government doesn't have to worry about the high interest payments on the existing debt.  

That will then allow the troubled government, with the now 'deferred' debt payments to pretend all is well.  

Of course, the troubled government would stil be on the hook to buy-back the old debt at some point.

But they would be on the hook to pay back the 'low interest' money the got from the gang-of-governments in the first place as well...But if they spend that money too....Oh forget it...

Sudden Debt's picture










Sophist Economicus's picture

I WANT A SUGAR DADDY!   NOW!....Uhm, make that a SUGAR MOMMY

Sudden Debt's picture

No problem, we'll send you a Sugar Mommy.

Her name/alias is: "STRAPON SUGAR",  SS in short.


Sophist Economicus's picture

Upon further reflection, who really needs a Sugar Mommy....

JW n FL's picture

Currency Amounts in New Special Drawing Rights (SDR) Basket

Last Updated: December 30, 2010

The IMF has announced that on January 1, 2011 changes in the relative weights of the four currencies in the Special Drawing Rights (SDR) basket will come into effect (Press Release No. 10/434). The initial weights assigned to each currency in the SDR basket have been adjusted to take account of changes in the share of each currency in world exports of goods and services and international reserves.
The table below shows the new currency amounts that will be effective January 1, 2011.To assist users of the SDR in preparing for the changeover to the new SDR valuation, the IMF has provided illustrative projections of the currency amounts every week in December.

                Calculation of Currency Amounts
in the New SDR Basket

(as of December 30, 2010)









Initial new weight (share)

Illustrative currency amount1


Exchange Rate on 2 12/30/10


U.S. dollar equivalent


















Japanese yen








Pound sterling








U.S. dollar









SDR1 = US$ 3








1 Currency amounts are based on average exchange rates for a period from October 1 to December 30, 2010.

2The exchange rate for the Japanese yen is expressed in terms of currency units per U.S. dollar; other rates are expressed as U.S. dollars per currency unit.

3 The value in U.S. dollars of one SDR, rounded to six significant digits.

Humpty Pundit's picture

EFSF= European Fanciful Subprime Facade (or fortification, or fornication)

youngman's picture

Hey...but they are striking again in Greece today.....that always adds 1% to the GDP .......

Sudden Debt's picture

and if they use molotovs = +2%

blindfaith's picture

so, when we start stricking here in the USA will our GDP go up to? 


Hey, all this financial stuff is eaiser than I thought.  Think I'll start a fund and tell all the investors "trust me"...isn't that how it goes?

MarketTruth's picture

The Greek should just follow other EU countries and just print up the Euros as needed.

Sudden Debt's picture

They don't have any printers who actually know how to print.

Humpty Pundit's picture

I am wondering why earlier in the week when it became known that Ireland printed up something close to 30% of GDP it did not phase the EUR?

blindfaith's picture

it would be a whole lot easier if all these countries just surrendered to Germany and got it over with once and for all.  The century old dream come true at last.  Heck 50% of the German people are in favor of it right now.

Shylockracy's picture

This is a wurst case scenario.

bullchit's picture

"Wurst"? how long have you waited to crack that one? :-)


topcallingtroll's picture

Its just as well that they kick the can.down the road and hope moderate inflation and a little bit of growth solves it. Im getting too old for the burning and pillaging. I got pitchfork elbow the last time.