As Greece Has Less Than Two Months Of Cash Left, An Insolvent ECB Sees A Widening Rift With Germany

Tyler Durden's picture

Today's EUR trading session which begins in about 4 hours, may be rather violent. While on one hand we have bond-negative news out of Spain, the biggest news once again comes out of the Swiss journal NZZ, which citing greek newspaper Kahtimerini, discloses that insolvent Greece has less than two months of cash left, or enough to last it until July 18, unless a new installment in the bailout tranche is approved for the country by the now headless IMF, and the suddenly insolvent ECB. Insolvent, because as Spiegel will report in its headline article tomorrow, and as we have noted many times before, the bank is "suddenly" finding itself lending out money collateralized by now virtually D-rated bonds: something not even Trichet will be able to spin off to the increasingly malevolent media. Per Dow Jones: "Skeleton risks amounting to several hundreds of billions of euros are on the balance sheet of the European Central Bank, magazine Der Spiegel writes in a preview of its edition to be published Monday. Those risks arise because banks, above all from Greece, Ireland, Portugal and Spain, have provided as collateral asset-backed securities that are unfit for central bank loans as their debt rating is low or non-existent, the magazine says." Alas, the European central bank's dirty laundry is being exposed just as a rift between the bank and Germany: its most solvent backer, is starting to develop. Also from Dow Jones: "German Finance Minister Wolfgang Schaeuble cautioned in an interview published Sunday that there shouldn't be a conflict with the European Central Bank over a possible restructuring of Greek debt. "If in the end it should come to an extension of bonds, of course, we need the approval of the IMF and above all of the ECB. Under no circumstances should it come to a conflict with the ECB," Schaeuble told Bild am Sonntag. "I advise all of us to use restraint in public debates about this question." Several ECB officials have rejected a restructuring of Greek debt and have warned of possible catastrophic consequences, while European finance ministers are slowly warming up to the possibility of some kind of restructuring as a last resort." Thus the crunch time for Europe's latest kick the can down the road round, once again centered on a bankrupt Greece, may be coming fast, and this time with a rather furious Germany.

From NZZ:

If experts from the EU, the International Monetary Fund (IMF) and the European Central Bank (ECB) do not give the go ahead for the next installment of the bailout package totaling 12 billion euros by the end of June give, then Greece will become insolvent on July 18, as the conservative Journal "Kathimerini" reported.

In the coming days Athens will fast track an aggressive privatization program. According to media reports, real estate should be taxed higher than before.

Further cuts in wages and pensions in the public sector and pensions are no longer excluded. In addition, state-run enterprises are privatized and will sell real estate, they said. The new savings program should be approved by parliament in early June.

Prime Minister Giorgos Papandreou noted in an interview with the Sunday edition of the newspaper "Ethnos" denying any form of debt restructuring. This would be no debate. Greece will repay all his debts, he said.

The head of the Euro Group, Jean-Claude Juncker, has proposed the privatization of state property Greece after the German model of trust. I would appreciate it if our Greek friends would start following the example of the German Treuhand privatization agency, a non-governmental, "Juncker said in an interview with the magazine" Der Spiegel ". This institution should be staffed with foreign experts. "The European Union will support the privatization program in the future as closely as we would conduct themselves," Juncker announced.

The potential revenue he estimated at "significantly more than the 50 billion proposed by the Greek government." The EU is also expected from Greece, "that the two major political groupings in the country put aside their petty disputes," said the euro-group leader: "Government and opposition parties should jointly declare that they are committed to the reform agreements with the EU . 'Only when Greece had consolidated its budget, one could initiate a "soft debt restructuring." Then we can consider to extend the maturities of public and private loans and interest rates lower, "said Juncker.

And regarding the €50 billion privatization prgoram by the Greek government, Alex Gloy of Lighthouse Investment Management asks:

Re: EUR 50bn privatization by Greek government – has anybody dared to ask:

  • Who exactly is going to purchase those state-owned assets? Domestic buyers? Those are busy trying to get their Euros out of the country (‘s banks) before it’s too late. Foreigners? Which foreigner would fork over dear Euros now only to find a Drachma-denominated (and quickly depreciating) asset shortly afterwards?
  • Who would invest in a country whose entire banking system is hanging on a thread (which the ECB is threatening to cut)?
  • Why buy assets that could be nationalized when a populist / communist government takes over after Greeks are (rightly) enraged about suffering endless austerity?
  • Why not ask Deutsche Telekom what they think about their 30% stake in OTE (Hellenic Telecom), bought for EUR 3.8bn (at EUR 27.50-29 per share, now: EUR 7.60). Buyer’s remorse came at the end of 2011. Deutsche Telekom hat to write off EUR 1.3bn on their Greek (and Romanian) investment. DTE management must hate themselves for having given the Greek government a put option for additional 10% stake until end of 2011. Why hasn’t the Greek government exercised yet? Don’t they need the cash? Only explanation: the Germans are twisting some Greek arms to try to make that put option “expire”. Full deal structure here.

All great questions, most of which bring even further credibility to the Andrew Lilico-proposed next steps for Greece.

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Alcoholic Native American's picture

2 months of cash left?  That's more than me.  Good luck to em.

Missing_Link's picture

Wait til the Icelandic volcano shuts down European airspace over the next week; followed swiftly thereafter by all the European economies.  Amazing how fast even that little liquidity can dry up.

TooBearish's picture

2 Months cash ?!?- shit thats about 59 days more than what Turbo Timmeh has in the bank for Uncle Sam!

Arius's picture

it will be a hot summer....we had cold wheather until last week....everything is shaping up  for July-August...the missing piece if this is a trial run or the real thing...will find out soon i guess...

Ned Zeppelin's picture

The fall is when these things happen. . . they'll push it off to September.  

Everybodys All American's picture

The ECB running out of cash has as much to do with our own debt ceiling as anything going on in the Euro Zone. No way Bernanke and the head clown at Treasury can ship more dollars for euro garbage.

Re-Discovery's picture

Germany would be smart to start constructing firewalls on its (economic) borders and let this thing burn out.  How?  Revert its currency.  Restructure its banks.  Re-arm its military.

Azannoth's picture

Germany would do very well playing on it's own, leveraging it economic dominance over Europe instead of shoveling hundreds of billions of german-tax payer money down the rat hole, but alas the (jewish) banks need to be saved

Re-Discovery's picture

Believe me, German people have lived this movie.  They will not let all the dominoes fall before they pull out completely.  I don't care who owns their banks.

Azannoth's picture

An anecdote

I play Starcraft 2(online strategy) and 1 of my team mates gets attacked and he says

"Help me, I am jewish!" - literary I am not making this up

and I am like "I don't like jews"

he's "why?"

... I didn't have time to respond

he "-my name- is a faggot!" and quits

And we where only playing a Co-Op againts a computer(for training) not even real enemies which makes his cry for help even more pathetic, and he wanted others to help him and 'die' for him only because "he's jewish"

This is the attitude those people have, he had to be between 15-30 this is the age group for this game

Arkadaba's picture

I think you meant "literally" not "literary". Normally I don't point out spelling errors (make enough of my own) but quite a difference in the meaning of those two words. 

I have done some online gaming myself - incredible for sociological research (and fun!)

cossack55's picture

Furious Germans are scary enough. When you get furious Austrians, look out.

sangell's picture

Merkel needs to use a technique the Fuhrer used when 'negotiating' with the Czechs over the Sudentenland. When the Czech president voiced objections to turning over the area to Germany Hitler grew furious and flung open the door to his office and screamed for Field Marshal Keitel, the head of the German High Command, to be summoned! The rest is history.

Merkel needs to prod G-Pap in a similiar manner.

agent default's picture

Why would anybody invest in a country with a track record such as Greece is beyond me.  Just fucking let them fail already. 

dick cheneys ghost's picture

From what Im reading....Greece has been in default 150 of the last 200 yrs!! bout we try jailing the bankers and politicians this time........see if that dont work.............


good day!!

Oracle of Kypseli's picture

If you going to default on your credit card, you might as well charge up to the limit + extension.

It's not like they are going to foreclosure on the Parthenon and Santorini 

agent default's picture

I don't know about the Parthenon but they can sure as hell get Turkey to arrange something for Santorini.  I hear the Germans are intrested though.

Captain Planet's picture

how about just giving the whole country to the germans.

kinda like a territory or maybe just a bundesland

then again, from an investment perspective its not very germanesque

Zero Govt's picture

you think Greece is an 'asset' to any debtors? ...looks like a huge liability of a place with any value, shipping and tourism, in private hands

silvertrain's picture

"real estate should be taxed higher than before"

"futhur cuts in wages and pensions in the public sector and pensions are no longer excluded"

Back to the streets we go and this time we get another turn up on the wick....

Nicholaz's picture

>> "real estate should be taxed higher than before"<<

One of the reasons why I don't own real estate is that RE makes it far too easy for the government to squeeze extra money out of you (oh, and no, I'm not Greek).

Central Bankster's picture

Yah, contrary to what most think, real estate does not do great during hyperinflation.  The issue is three-fold.  One, is that most people own some real estate and during a crisis are potential sellers  (though at the very END of the crisis it does great).  Two, the government levies ever greater taxation (because lets be honest, the thieving politicians want to steal most of your wealth).  Three, owners have trouble raising rents to keep pace with the inflation because their tenants are busy devoting all their cash to food/energy.

With all the stories about governments going after private pensions and raising taxes on everything they can find (real estate, income, sales, fees, soon to be financial transaction tax?)-  it is just another reason to buy physical metals.  They can't find it, they can't tax it.  Socialist central planners hate PMs because they hate honest money and they hate that they can't steal it without the use of force.

High Plains Drifter's picture

let the arab spring come to europe. however. attention muzzies. stay the hell out of the way. first things first. the indigenous anglos in these countries need to get the rothschild boot off of their collective necks, one way or the other. then they have to deal with all of the illegal immigrants that have invaded their prospective countries. for europe and its people, to survive, both of these events must take place. there is no other way to deal with it.

IdioTsincracY's picture

The flaccid people of Western states will not find the force to revolt until they are lean and 'hungry'!!

Azannoth's picture

True, and the old generation I mean people older than 35 religiously believe the old war time Allied propaganda about who is evil and who is good, but I think my generation (<30) has a more open mind about history and other things

IdioTsincracY's picture

open mind helps ... they also have more debt, higher unemployment, and probably no retirement to be had ...

they better wake up soon!!

Captain Planet's picture

well said.

physical; bitches!!

IdioTsincracY's picture

Greeks had to opportunity to lead the world in a revolt against the oligarchy ... after a few days of protest they decided to go back to their sofas and tv sets .... I guess they chose slow death ...

all these protests in Western countries show the true nature of the sheeple

Oracle of Kypseli's picture

Greeks do not watch TV and the sofas are mostly for the guests.

Soccer games, yes.

Chatting and sipping frapuccino at the cafes, yes. 

Eating well, yes.

Full months vacation to the islands, yes. 

Rejecting frozen french fries (called plastic) yes.

Just remember Alexi Zorba. "Dance my friend"

Note: Most Greeks are well off and own two homes outright. It's the government that's broke.


A Man without Qualities's picture

But the apparent wealth of the individual Greek has come about as a consequence of running the government into bankruptcy, and now there is an uproar and desperate attempt to find others to blame.

IdioTsincracY's picture

So ... oracle ... I guess it's time to lose the frappuccinos. isn't it?

14%+ official unemployment

22% poverty rate

GDP growth rate -4.8%

official inflatio rate %4.5

Yeah ... everything is fine

Arkadaba's picture

Nice video clip - I haven't seen the movie but plan to now.

falak pema's picture

neither the greeks nor the Italians pay Italians are richer than the french!

Nicholaz's picture

Just wait until after the vote Spain discovers that the situation is far worse than they thought and that they are playing in the Greek league:

Nicholaz's picture

Pity that there'll be again a French head of IMF, because the French were fighting hardest to save Greece because their banks are far more exposed to Greek risk than say Germany's (and "were fighting hardest" of course means, kicking/screaming and pushing other EU countries [like Germany] to pay the bill and bail out French banks).

oogs66's picture

And Trichet, another arrogant Frenchman, has made the problem worse by using his power as head of ECB to take on more and more Greek and Irish risk.

cossack55's picture

Ah, reminds me of all those French rubber plantations in that remote and interesting Indo-china region so many moons ago.

Blorf's picture

Reminds me of the bond issues that Illinois was contemplating a few months ago.  They were attempting to sell bonds to fund pension shortfalls or something.

It's one thing to issue bonds to fund a new road or some sort of infrastructure that might generate return on investment.  But who in their right mind would buy a bond that is being used to pay money already spent on worthless crap, issued by an entity that has already proven it can't pay its own bills?



Misean's picture


williambanzai7's picture

I hate to say it, but this is fucking hilarious.

These guys are putting the clown profession out of business,

This is really starting to feel like going into the summer of 2008, except the shorts are all under cover.

Arkadaba's picture

For some reason this song comes to mind (note - bad audio):

oogs66's picture

Trichet's reckless open market purchases of Greek and Irish debt have made the problem for the governments even worse.  He took on the market and was wrong.  He is using his influence to protect his own horrible decisions.  He should be removed from the process of trying to fix Europe.  His actions, largely based on his egotistical assumption that the markets were wrong, is costing Europe more than the original bailout.  He is not helping anyone but himself at this stage. 

It should give our government some fear about the damage our own egotistical Fed chairman run amok is potentially causing to us in the long term.  Just as Trichet's first purchases seemed to help, all they did was buy some time and make the ultimated problem worse.  QE3 anyone?

dcb's picture

wrong, trichet was very smart. by making sure the ecb was also on the hook for greek debt in increases the chances of the bankers getting bailouts.


you'd think if we learned anthing from lehman, that stuff like this would be ring fenced and the banks would have some capitial know. But for the bankers of course the lesson was we always have to bail out these people (meaning us the bankers) because of the tax payers don't it will spook the market. LOL you got to love the logic. what a rigged piece of crap western capitialsim has become

M.B. Drapier's picture

(I am not an expert on anything.)

Trichet's possibly less reckless, and certainly more cynical, than you're giving him credit for. He isn't gambling against the markets, he's wrestling with the EU's governments.

Here's how it works. When the crisis hit back in 2008, the ECB predictably decided that it would support the USA's No More Lehmans agenda to the hilt, in the interests of the banking sector ... sorry, in the interests of financial stability, of course. But it was facing two big problems. First, it had reason to doubt that the EU member states were really committed enough to doing Whatever It Takes to bail out everyone. This is mainly because bailing out everyone in the Eurozone would require one or both of 1) truly grinding austerity in the creditor countries, pushing their budgets far above primary surplus in order to pay off sovereign and private-sector bank creditors and 2) massive EU fiscal transfers to the creditor countries - Eurobonds, or whatever guise they would wear. You just can't trust politicians to deliver on things like that, even under the spectre of MOAR LEHMANS!~1 (And it doesn't help that 2) is banned under Lisbon.) It would all be a lot easier if the ECB could sugar the pill by printing lots of money. But that's also banned, and everyone can see that it would effectively create a huge net fiscal transfer as well.

Alternatively, the ECB could just bail everyone out itself. Except that it can't: it has little authority or mandate to bail out insolvent banks and sovereigns in the interests of financial stability - and worse, it has no mechanism to absorb the inevitable losses. There's no pre-ordained mechanism to recapitalise it, and any recap would of course be another net fiscal transfer. And it can't print away its own losses for just the same reasons it can't print away others'.

But you know all this. So, what can the ECB do? It's not supposed to lend to insolvent institutions, it's utterly forbidden to run up huge losses, and it can't trust governments to rescue all the creditors themselves. Sit around carefully lending only to sound institutions, beseech the governments to rescue the bust ones and hope they agree? Not if your name is Jean-Claude Trichet. The key is that big ECB losses would be almost as much of a nightmare for EU governments as for Frankfurt itself. Eureka: lend lots of money to prop up insolvent sovereigns and banks, then demand that the governments make sure you get your money back by hook or by crook, or else not only will there be MOAR LEHMANS in the private sector, but the ECB itself will also suffer huge losses! It's a textbook hand-grenade mugging. The only question, I think, is to what extent it was premeditated as opposed to something the ECB stumbled into. Of course, what you say you're doing is lending to Greece, Allied Irish Banks, etc. on the strength of your absolutely firm confidence that your friends in government would never consider allowing losses to senior creditors in these institutions. In reality, you're actually helping to close off the restructuring option which the governments might otherwise consider, and this is partly deliberate.

(Again, see Buiter, who also points out the distinction between the ECB and the Eurosystem which I passed over here.)

On your other argument, you are absolutely right: Trichet should be shot from a cannon.

virgilcaine's picture

GS should be concerned very concerned.