"Greece On The Verge Of A Precipice" As A "Lehman-Like" Avalanche Could Be Set In Motion As Soon As Sunday

Tyler Durden's picture

Keeping a track of all the fluid, hourly changing developments in Greece can be unbearably complex, and as a result one may be left with the impression that things are better than they really are. They aren't. As the SocGen report below summarizes, Greece may have about 72 hours before it gives itself a Pass/Fail grade on Sunday, which in turn will have massive repercussions on the Troica bailout, on the eurozone, on the EUR, and on all those "Lehman-like" consequences you have been reading about. Once again, just like 2000 years ago, the fate of the western world (we would say democracy but that has not been the case for centuries), is about to be decided by a few popularly elected parliamentarians in Athens.

From SocGen:

Greece: One step closer to the precipice

Greece’s sovereign crisis has reached a critical phase, and the likelihood of a disorderly outcome has risen dramatically in the last 48 hours.

Two-year Greek bond yields breached the 30% mark, while Irish and Portuguese yield spreads reached one-year highs.

In the meantime, Greek economic and fiscal data continue to disappoint, and public discontent is rising in the face of the human costs of an ever deeper economic downturn.

Against this backdrop, the backlash from yet more austerity has triggered a severe blow to the ruling Government. The catch is that the Government needs to approve the Medium Term Fiscal Plan for EU/IMF funding to be disbursed. This is looking challenging as the survival of Papandreou’s government hangs on a formal confidence vote on Sunday, and two more defections from the ruling PASOK party on Thursday depleted its majority even further.

Given these unexpected complications, the IMF is now reportedly ready to release its next quarterly instalment to Greece purely on the basis of assurance of EU funding rather than on formal conditionality, paving the way for the €12bn July tranche being disbursed. Olli Rehn stated  that the deal on this payment should be forged at this Sunday’s meeting in Luxemburg.

However, even assuming that the domestic political hurdle is cleared and the €12bn loan is issued, the divide between German and French positions on private sector burdensharing is unlikely to be resolved immediately, and so the uncertainties about Greece’s longer-term funding seem destined to persist.

Indeed, the degree of private sector involvement will have a material impact on Greece’s funding needs. The IMF estimates that Greece’s financing need for the next three years amounts to €144bn in the absence of private sector involvement, but it would fall to €120bn with a “voluntary” rollover, and to around €90bn with an outright maturity extension. Ultimately, we continue to see a Vienna-style initiative as the most palatable compromise.

Politics: Irish parallel

Greece’s rising economic and social tensions have morphed into a fully fledged political crisis. Just as in Ireland at the beginning of this year, the Greek opposition is now demanding more favourable conditions than those originally signed with the EU/IMF back in May 2010. But the political situation has become extremely fragile, posing a material threat to the EU/IMF disbursement of the July tranche of the loan, and a solution to Greece’s medium-term funding gap.


Despite some reassurances from EU Commissioner Olli Rehn on Thursday evening, the formal conditions for Greece to obtain funding from the EU are under severe risk of failing, because EU funding is conditional on the Greek Parliament passing the Medium Term Fiscal Plan. A failed vote of confidence could critically derail this process. In turn, the EU/IMF programme’s fifth quarterly disbursement of €12bn is conditional on  the EU providing funding for Greece over the next year. Only then will the IMF contribute its €3.3bn share of the total quarterly disbursement of €12bn. This double conditionality in principle creates a deadlock, and the Greek Parliamentary vote of confidence becomes a de facto  necessary condition for cash heading to Greece in early July. Right now, the odds don’t look so good.

The vote: The odds are tight

Prime Minister George Papandreou stated that he would reshuffle his cabinet on Thursday, and demand a confidence vote in Parliament. Taking into account the three days usually required for this process, the actual voting is unlikely to take place until Sunday June 19. There is a lot at stake with this vote. A successful outcome would throw the ball back into the EU’s court, and allow the EU/IMF policymakers to proceed with devising a medium-term funding solution for Greece.

But political risks remain extremely high. PM George Papandreou’s majority is extremely narrow after two further defections on Thursday. The  margin of victory may boil down to one or two votes, making the outcome virtually unpredictable at the time of writing.

Policy solutions: Two constructive developments

Notwithstanding the high hurdle posed by the vote of confidence, a legitimate question is how this policy deadlock might be overcome. There are two positive developments on this front.

Firstly, the IMF is now reportedly willing to release its next instalment to Greece purely on the basis of assurance of EU funding rather than only conditionally after formal binding commitment.

The second positive development is that Germany’s demands for private sector burden-sharing have been toned down slightly. This opens more leeway for negotiation between Germany and France, given their differences of opinion on the optimal degree of private sector involvement.

The impression is that this critical decision may be postponed to a later date.

Private sector involvement: a key divider

One possible way forward that is reportedly being evaluated is for the IMF to obtain the commitment “in principle” from the EU to meet any shortfalls in financing if a private creditor contribution cannot be agreed at a later date, but for the IMF to proceed with the disbursement anyway. But this area remains surrounded by uncertainty.

Private sector involvement makes a large difference on the aggregate funding costs

One of the few certainties is that the degree of private sector involvement could make a major difference to Greece’s financing needs.

The IMF is reported to estimate Greece’s financing need for the next three years to amount to around €144bn in the absence of private sector involvement, and to around €120bn with a “voluntary” rollover. The most effective way to reduce Greece’s financing needs would be an outright maturity extension which would limit the required financing to €90bn.

Also for these reasons, we continue to see a Vienna-style initiative as the most likely outcome as the most palatable compromise.

What to Expect from next week’s EU meetings?

Looking ahead, what seems increasingly likely is that next week’s Eurogroup and Ecofin meetings (June 20-21) are unlikely to result in a policy leap, and that the elusive “crunch time” will shifts to July 11, or quite possibly even later.

Against this backdrop, the only certainly seems that uncertainty is destined to remain high, alongside the perceived risks of contagion. Hardly a constructive environment for Europe’s highly indebted periphery.




To those who remember the Lehman trading Sunday, keep your Bloombergs close over the next 3 days. History may just repeat itself all over again.

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Ahmeexnal's picture

The franco-germanic imperialist banking cartel will face a full blown greek intifada.

The power elite are about to get torched.  Already they have tried to divest themselves from the toxic greek assets, in effect transfering most of the burden to the US/french taxpayers.

The burning ball has been kicked to another player.  Who will receive the exploding ball now?


hugovanderbubble's picture

Emporiki,Credit Agricole ----------------------------->pink sheet .---------------------> DEFAULT

Pegasus Muse's picture

Just listened to Jim Sinclair's latest (16 June) KWN interview.  I've never heard him this worked up about the current state of financial affairs.  He feels we could well be at the cliff's edge.


Maiden Lane's picture

Is it time for "This is it" again already?

tickhound's picture

dude, that's funny... precipice, bitchez.

baby_BLYTHE's picture

The IMF is a criminal exterprise, they redefine the word FASCISM. If Greece tolerates IMF 'Shock Theapy' they are doomed no matter what.

mynhair's picture

But what about the bonuses for TPTB?  Only riot dog has a clue in that country.

Fighting for his rice bowl, riot after riot.

baby_BLYTHE's picture

Angry Mob Justice is the solution. Just like the French proved in 1789.


Concentrated power has always been the enemy of liberty.'s picture

though I normally relate to many things said on this site.  The idea of French Revolution style mob justice is not a solution to anything.

A mob is not a rational thing.  A mob is not a creative entity, only a destructive one.  I do not disagree with unity against a threat to society.  But the French Revolution was and is not a solution to anything.

Rational Psycho's picture

It'll scare the shit out of TPTB, and maybe make them think twice before enslaving people with debt again.

Founders Keeper's picture

[It'll scare the shit out of TPTB, and maybe make them think twice before enslaving people with debt again.]---Rational Psycho

Psycho, I appreciate your optimism, but TPTB never "think twice."

Count on them to be consistent.


baby_BLYTHE's picture

I am just saying, it is one ultimate solution.


If I were POTUS, I would have offered up Bin Laden to the pubic (whether you believe the official story or not).

Public hangings have rich history in American and other western nations.

Many bankers and politicians deserve their necks stretched.

Angry Mod Justice is what republican democracy is all about. Freedom of speech ensures everyone's voice is heard

Urban Redneck's picture

As long as you are willing to sacrifice your own head in the process.  These things don't tend to be about guilt or innocence. 

Founders Keeper's picture

[Angry Mod Justice is what republican democracy is all about.]---baby_BLYTHE

Hi bBLYTHE. I can see you wrote this statement at 1:30am. Now today, do you still stand behind this statement?

Our Founders vehemently opposed "Mob Justice." The ends do not justify the means. The rule of law must stand.


jimhalpert's picture

You assume the USA is still a free country.  There's room for debate on that one.

Popo's picture

A mob is certainly not a rational thing.  But creative destruction requires destruction prior to creativity.


One must smash, tear down and destroy that which is beyond repair.  It is the natural way of things.  

The anarchists and nihilists of the early 20th century understood this well.  The mob is important even if it is dumb.   Terror and random destruction are both inevitable and vital.  Control *is* the problem.  A lack of it is the solution.

Incubus's picture

I understand it, but I don't have any faith in people to do anything proper. 

The next system--should it ever come to be anytime soon--will end up just as messed up as this one.  Everything "human" ends up corrupted, eventually.



j0nx's picture

Agreed. It always re-corrupts at about the same time as the last of the generation who lived through the old corruption start to die off.

jimhalpert's picture

Human is the problem but what should we do?  Kill ourselves? every last one of us?  By nature we are imperfect.  The key is to course correct when we have the opportunity to.  Unfortunately there is a condition that has spread of stick your head in the sand itis that may be incurable.

Oh regional Indian's picture

I agree witht h eposter above.

Baby, violence begets violence. In a violent game, only the most violent wins. Logical right? Even if their viollence is hidden in the garb of intelligence/cleverness.

If you want to wish for something, wish for a CME that hits a machine reset.

That will be a "fresh" start.

Revolutions? It's what got us here, right?



mayhem_korner's picture

Was that you in Vancouver Wed night?  :D

Oh regional Indian's picture

Hah! Far away. Sporting related violence has to be TPTB wet-dream eh, Mayhem?


Silver Dreamer's picture

The problem with a mob justice or French Revolution situation is that they only punish innocents and puppets.  The people responsible rarely ever get what they deserve.

Tim White's picture

I love Riot Dog! Have it saved on Fave's...

dolly madison's picture

Greece will face austerity with our without the IMF, so they might as well tell the IMF to go to hell.

JustACitizen's picture

I hope that the Greek citizenry continue to resist...and even if the gubmint somehow agrees to something - I hope that more of the economy just goes underground - y'know barter and such. Even if the elite have their hands on all of the levers - I like to think that there are ways around the machine... Good luck Greeks!

mynhair's picture

You mean the loser goobermint employees, right?

JustACitizen's picture

Regardless of their employment - I think that once the elites get done plundering the country - the only things that people will have - will be whatever they can keep physical control of - y'know - something like we are heading for...

The Profit Prophet's picture

Agreed...the black market will grow exponentially and their funding shortfall will only increase. There is a palpable loss of control taking place by the world's financial Elites.

T.E.I.N. everyone!

Mentaliusanything's picture

The Old fart agrees - Greece is a no brainer for default


Which means it won't happen because he has never been right on any major issue.

But I know Greeks - first they get the money then they default while laying off some good side bets

A Man without Qualities's picture

The old fart hopes Greece defaults, so they can blame the US economic crisis on external elements and use it as an excuse to print more money.

It seems to be the global playbook.  Look how the Japanese markets are suffering because of Greece - not the damage from the earthquake, not the never ending nuclear disaster, not the 220% debt to GDP ratio, but the ongoing clusterfuck in Greece.

NumberNone's picture

Eurogroup and Ecofin?  Let me fix that....Eurogrope and Ecoffin.  All better.

mynhair's picture

I long for the day TSA strikes.  Dem jet engines are hungry.

Roger Knights's picture

"the survival of Papandreou’s government hangs on a formal confidence vote on Sunday, ..."

Sever on Sunday?

The Fonz's picture

He is just guessing as to the day, the most important thing is to know when it is going to happen and make darn sure you know the results immed.

A Man without Qualities's picture

So as long as the money has arrived into their Swiss bank accounts by Saturday, all will be well?

JR's picture

Here’s how the chief executive of Europe’s largest bank, Deutsche Bank, intends to play the Greek crisis.

Designated as “the most powerful banker in Europe and, depending on whom you ask, possibly the most dangerous one, too,”  Josef Ackermann is the man who has helped ECB’s Jean-Claude Trichet “ shape Europe’s economic and financial future.“

In a recent NY Times article, Deutsche Bank’s Chief Casts Long Shadow in Europe, the authors observe that it is no secret where the Jewish international banker’s allegiance lie: “with the banks.”

For instance, writes the Times, Ackermann “has insisted that providing some sort of debt relief for Greece would be a huge mistake. Such a move — a restructuring, in banking parlance — would involve writing down Greece’s debt, which is now more than 140 percent of its gross domestic product, deferring payments and cutting interest rates….

“European banks, including German ones like Deutsche Bank, hold many billions of euros in Greek government bonds, and the banks would lose big if those debts were restructured. For the moment, Europe’s solution for Greece is, essentially, Mr. Ackermann’s: more bailout money and more austerity — an approach that some economists say only buys time without offering any hope of recovery….”

The Times, which says Ackermann is admired by many but “has also become a lightning rod for public hostility toward banks,” keeps an apartment near Central Park and “his bank has a large operation on Wall Street – indeed, it helped inflate the American mortgage bubble.”

Ackermann, whose office in Frankfurt is just a few blocks from close associate Jean-Claude Trichet’s at the ECB, claims the biggest challenge now is to “convince people of any country to help Greece even more.”

Writes the Times: Ackermann "called on European governments to devise a ‘Marshall Plan’ for Greece that would offer more aid, while forcing the country to sell billions of euros’ worth of state assets, and provide a framework for rebuilding its economy.

European governments have largely followed that advice. At the same time, however, Mr. Ackermann has opposed the German government and sided with his friend Mr. Trichet...in arguing against restructuring the Greek debt, which would force investors — and banks — to share Greece’s pain.

“Any restructuring, Mr. Ackermann cautions, could be even worse than the crisis brought on by Lehman’s collapse. It could threaten the stability of major financial institutions, as well as the European Central Bank, which hold huge amounts of Greek debt, he says. “


desgust's picture

Yes, so is it! And he's Merkel's best friend. She invited him 2 years ago to celebrate his anniversary in Kanzleramt. He is the real Fuehrer in Germany, not Merkel! She's just another American vassal like all chancellors before. Germany has not peace treaty after the WWII and according to international lawa is still an occupied country. The rest is theater for the peasants. Germany is not independent, Germany has no constitution. Das Grundgesetz, the so called constitution in "Germoney" is a provisorium and should have be voted on by the sovereign after the reunification which didn't happen.

Germany is worse than Iraq, it's the hoax of the century!


Oh regional Indian's picture

It's all a scam des, even India. An Italian ruling us, whose father was a KGB agent. 

Every central banked country.... you can take it for granted that their "definition (democracy, republic...etc) is all one big farce.


JR's picture

Alas, is America soon to follow Germany’s fate as retribution for her past sins?  By helping to seal Germany’s fate, did she seal her own?

In 1911, the year banker Paul Warburg was commuting between Germany and America to conspire with bankers and politicians here to birth a banking cartel, Professor Werner Sombart was summing up the situation in Europe where Finance had come to occupy a disordered dominant position.

“If we want to make clear in one sentence the direction in which modern political economy is moving, we can say: the stock-exchange agents of the banks are becoming in an ever-increasing measure the dictators of economic life.  All economic happenings are more and more subordinate to the decisions of finance.  The question whether a new industrial undertaking is to spring up or an existing one to be developed; whether the owner of a shop or a store is to get the means to extend his business, all these questions are decided in the offices of Banks and Bankers.  In just the same way the sale of products is becoming, in an ever greater degree, a problem of finance.  Our greatest industries are indeed already just as much financial associations as industrial undertakings.”

NoClueSneaker's picture

 .... aber WIR sind der Export-Weltmeister ... :-P


( It's easy to sell 500 tanks to Greece with an argument of the knife under their troath . )

Michael's picture

I bought a Deutsche Bank owned home in Florida for 10 cents on the dollar. They lost 275k on the deal.

I did my part.

FlyPaper's picture

Ackermann's arguments are exactly what you'd expect from a cartel banker.  The bank wants to loan Greece more money - because they make interest.  A write-down is the 'end game' for that debt; no more accounting gimmicks to pretend they can keep the bad debt at book value.

This is when the banks have to take a loss.  

Followed by: "OMG, you know, if you don't bail us out, there could be MAYHEM in the economic life; people will be unemployed; the world will collapse..."  which usually means a politician can assume he/she will be out of a job.  

Followed by: "We must have the government help out" - which keeps the banker's game going - and puts the PUBLIC on the hook for the banker's screwup.

He's doing nothing more than playing the "central bank game," which translates: we make the money, we take the risk; and you bail us out if our casino game doesn't work.

Isn't that what they did in 2008 to the US Congress?  

How the hell did Goldman go from an uninsured investment bank to a commercial bank with FDIC backing?  

Frankly if I was Ackerman, I'd push the crisis, because its then that you can scare the politicians out of the public's money.