As the Greek parliament begins its debate on the mid-term austerity plan expected to culminate with a vote later in the week, below is a quick glance at the layout of the Greek parliament via Reuters for those who are still unsure of the distribution of power. As can be seen, PASOK's majority is in question, with just 5 votes in protest needed to scuttle the carefully set up house of cards which would set off in motion a chain of events that would lead to a liquidity freeze worse than anything seen in the aftermath of Lehman. The question is whether any of the opposition parties will shift their allegiance to G-Pap: if the vote of confidence is any indication, in which not a single non-Pasok member voted for the PM, it does not look good.
Here is a summary of the most recent developments from Athens News:
Greek lawmakers will begin debating a 28 billion euro package of measures to increase taxes and cut fiscal spending that is critical to winning a new round of international funding to keep it afloat.
A rejection of the austerity plan could greatly worsen pressures already reflected by rising Portuguese and Spanish government bond yields, possibly bringing high-risk Europe closer to a chain of sovereign defaults that would blow out interbank funding costs and place heavy stress on the region's banking system.
The risk of a credit event of this magnitude is keeping two-year U.S. interest rate swap spreads near the widest in a year and helping to lift the U.S. dollar out of a downtrend that has lasted a year.
"If the government wins, there would be some bounce in shares. But it does not change the long-term story. Greece's finances are pretty unsustainable and until it starts dealing with its ability to raise funding internally by more efficient tax collection, investors will continue to be nervous," said Felicity Smith, fund manager at Bedlam Asset Management.
"Investors are more concerned about its effect on the banking system. If there is a disorderly default, then there is a real risk of another Lehman-style shock and its knock-on effects on other peripheral eurozone countries," she said.
And as a reminder, the update on the "French" plan on pretending the ponzi isn't ending, is to shove all the Greek debt into an off-balance sheet SPV and forget about it forever:
A French plan for rolling over Greek debt would involve placing new bonds in a Special Purpose Vehicle that would take them off the balance sheets of the participating banks, a French government source said on Monday.
The plan, to be discussed with European Union finance officials, would cover Greek bonds maturing between 2011 and 2014, and the SPV could be set up at a national or European level, the source told Reuters. "It's an initiative of the banks, it's a private initiative. There is no public guarantee," the source said, adding that the proposed scheme could be extended to insurance companies and investment funds.
All in a day's work to paper over the fact that the SS Ponzi is now rapidly taking on ever more water.