Greek Bonds Collapse As ECB's Nowotny Announces Bank Will Compromise, Agree To "Temporary" Greek Default

Tyler Durden's picture

Wonder why the Greek 2 Year bond just plunged, sending its yield to a laughable all time high 39.09% (a 312 bps move today alone)? Wonder no more. According to the ECB's Ewald Novotny the central bank has folded to German demands, and will now allow a "temporary" Greek default. Of course, what happens next will be a complete freeze in capital markets (see the chart below which shows borrowings on the ECB's Main Refinancing Operation while itis still available) but who cares: the central planners think they have it all under control.

From Bloomberg:

European Central Bank council member Ewald Nowotny suggested the bank may compromise and allow a temporary Greek default as officials scramble to fix a sovereign debt crisis that’s spreading to Italy and Spain before a leaders’ summit in two days.

As Spanish financing costs surged at a 4.45 billion euro ($6.31 billion) treasury bill auction today, policy makers are trying to ease a split that’s pushed interest rates on Spanish and Italian 10-year debt above 6 percent for the first time since the euro debuted 12 years ago. The ECB has until now argued that any Greek default could spark a new financial crisis, derailing a German push to make investors help foot the bill for a second bailout of the country.

“This has to be studied in a very serious way,” he told CNBC in an interview broadcast today. “There are some proposals that deal with a very short-lived selective default situation that will not have major negative consequences.”

Ironically, the ECB is correct about the consequences, which explains its unwillingness to push forward with this plan. However, Germany's realization that none of its banks are pregnant with Greek debt is waht has allowed the follow through. The problem however, as everyone who dabbles in these things, is known as unintended consequences. And despite what you may have read in various books by assorted namedropping anchormen, the administration was 100% confident it could contain Lehman when it failed as well. Oh well, it was bound to happen sooner or later.

We still have a sinking feeling that a "temporary" Greek default may be announced as soon as 48 hours from now when the EU leader meeting concludes on Thursday.

One thing is certain: European banks arent taking any chances, with borrowings under the ECB's weekly MRO just surging to a 2011 high of €197 billion as everyone seeks to shore up capital in advance of what could be a complete liquidity freeze later this week.

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Salah's picture

Ho-Ho-Ho.  Let's see what kind of wet blanket this provides to the elevated futures this am.

Ray745's picture

This happened overnight around 1-2 a.m. EST, futures took it as good news, hence their elevatedness originally

bob_dabolina's picture

No futures are up because China prevented ice9 from seizing up the system by buying European bonds overnight. 

Arius's picture

Futures are up until they go down ... the trick is to buy low and sell high ... its the old saying: know when to hold them and when to fold them.

Or just sit in there like the deer ... until the car kills u ...


i-dog's picture

Bingo. China is the bagman helping to keep both EUR and USD afloat until TPTB are ready to pull the plug. Minor skirmishes between some US players (eg. the DSK setup) and some EU players (eg. the Murdoch hoo-hah) attempting to advance their position in the final dénouement keep the bout interesting, but there are still many rounds to go.

Of course, being a centrally planned bout, someone in the audience could jump the ring and deck the referee at any which point the master plan could go pear-shaped......

Pass the popcorn, bitchez!

Oh, and PS: IMO, none of the CBs are planning on this WWE farce going on more than (or much less than) another 15 months.

Mr Lennon Hendrix's picture

It ain't good news.

Swan Lake: Europe

Europe has had a long history of succumbing to futile lords after achieving great strides in wealth creation, if that be philosophically or financially.  Its Whiteness is one of blinding light, where memories of past broken trusts were forgotten in favor of  promised future gains.  Europe is the epitome of why not to trust private banks.  A society can accumulate wealth, and reinvest for the future, but if the proxie government is in charge of the funds, and usury is being used to compound growth, then the result will be failure, because along the way the system will pick the pocket of the first investor.  Banking is nothing but a ponzi scheme.  Loans can facilitate growth, but when those in charge are most concerned with making profits for themselves, there will be nothing left for the initial investors....

Swan Lake- Europe:


chumbawamba's picture

Yes, those damn futile lords!  Everything they do leads to complete uselessness.  Will they ever learn?

- Chumblez.

Reggie Middleton's picture

The German banks may not be pregnant with Greek debt, but they are the leading financiers of CRE about to be rolled over and a rate spurt caused by a Greek default will push already anemic CRE values down just in time to create an equity gap in said rollovers. One should expect the planners that be to of throught these things through a little more thoroughly. Reference

bugs_'s picture

The PLANNERS that be  (lol!)

we can all agree

say default is temporary

to keep jobs at the E-C-B



Debt Rolling's picture

Where can I sign to get a guaranteed 40% annualized return on my money? Lol...

disabledvet's picture

you can go to Greece. And you can dollar cost average it if you like...depending on your risk tolerance of course. If you have money just "laying around" (or is it lying?) why not?

ads56's picture

Very bullish. This will send Apple over $400.

papaswamp's picture

the next question is will we see this spread to the others?

Quintus's picture

I would have expected Irish and Portuguese yields to rise on this news, but oddly they are declining.  I wonder how long that will last?

NoClueSneaker's picture

Definately ... untill one of the EU-Countries commits a jail-break ...

midtowng's picture

It's already spreading to the others. Ireland and Portugal are priced out of the debt markets. How long can the ECB keep both of those countries afloat? If interest rates don't come down then eventually both of them will default too.

throughthewire's picture

The Mother of All Depressions is well underway.

Bang Dae Ho's picture

Hopefully she leaves her husband at home = 'Vater aller Dinge' = father of all things = German metaphor for war.

MsCreant's picture

Is this the detonator? Default = Default. A rose by any other name still smells like napalm in the morning. Holy shit.

Or, this could be one of those test firings. I can't think of the term, you trot out a type of horse as a test balloon for an idea???

Salah's picture

Maybe the term you're looking for is "trigger mechanism".  It's like the old saw, "being a little bit pregnant"; if they're doing a 'temporary default' wouldn't that imply lots of financial firewalls, firehoses, and designed backfires, etc?  See any? Really, are the Europeans capable of this level of preparatory humility?  I question the entire culture here, it's got h_u_b_r_i_s writ large.

Walter Russell Mead said it best a few days back: "Look, for example, at Europe.  Not since the 1930s has the incompetence, incapacity and selfish shortsightedness of Europe’s governing class been so shockingly on display.  For eighteen solid months Europeans have been trying and failing to come to grips with the economic crisis of the eurozone.  And for eighteen months they have ignominiously failed."

Maybe this is where they need to start on the reprogramming their mindset:


cosmictrainwreck's picture

not just failed, but ignominiously failed (bitchez)

Cleanclog's picture

Again, I think the term is "repudiation".  Debt saturation => repudiation.

knukles's picture

A missed coupon payment by any other name is a ... uh... oh, moratorium...deferral, temporary impairment? 
Pass the Synonyms for Dummies

But what's best is the ECB agrees that...
Like "Well, OK, we'll let you go into default but just this one time."
(Delusion of Control.  But then again, must at least posture...)
As if the ECB has any say in the matter.

The Imitation Stalking Horse Delusion.

(Oh and PS, I owe you the response you'd requested.)

MsCreant's picture

Stalking horse, that's it!!! Thanks.

Look forward to it, no rush. You do not seem to be about rabid, random hatred (unless banksters or corpulent corporate hucksters are involved) so I will enjoy the discussion when you have the time.

chumbawamba's picture

One may hope, but I've grown cynical (and older) waiting for the moment when I can finally inhale again.

We wait and we see.

I am Chumbawamba.

MsCreant's picture

You can't fool me sweetness, I know you inhale. ;-)

bigwavedave's picture

there is a german solution in the works. the only solution that will be adopted will be a german solution. nuff said

MsCreant's picture

Holocaust seems about right.

gmrpeabody's picture

How much cost would a holocaust cause is a holocaust could cause cost?

gofigure's picture

now that's not funny!  no wait, yes it is, lol

aheady's picture

Yeah, it is. Very funny.

stewie's picture

lol, very nice.  If you allow me...

A Holocaust causally casting it's cast caused costly cost to caucasian caucus Kauss & Co.



snowball777's picture

So you think Merkel the Urkle is ready to commit political seppuku on behalf of the geniuses at DB?

<presses start on microwave>


AnAnonymous's picture

there is a german solution in the works.


So far there have been only german solution, the City(Britain), Wall Street (US) are all located in ethnically german countries.

Cole Younger's picture

I have to ask, when is a default considered temporary?

qussl3's picture

When taxpayers take the hit.

MsCreant's picture

I called my loan servicer and told them I was in temporary default, just until my next paycheck. Like that? Maybe they could go to one of those cash for titles places and get a lil bit to hold them over, just till the end of the week when they get paid.

snowball777's picture

They should try the idea floating around here to solve the US debt problem and just let people kick G-Pap in the sack for a few zooro each.

AUD's picture

The default you have when you're not having a default?

Archimedes's picture

Big deal! Laszlo Birinyi just said the S&P is going to 2,000 in the next 13 months! </sarc>

snowball777's picture

<rotates Laszlo's chart 180 degrees for him>

Saxxon's picture

Look at those futures!  The Governments obviously have it under control.  Gold's overbought and will correct a few days.  Load AAPL for another blowout quarter!

bank guy in Brussels's picture

As Gomez Addams said in 'The Addams Family' films, it's ...



High Plains Drifter's picture

one would think such news would make metals go skyward.   but no. they are under attack. hmmmm?????

Larry Darrell's picture

Don't forget, with central planning everything is coordinated.  Gonna release some news that would send gold/silver screaming higher...........go ahead and let your pals know there are large margin hikes coming for the metals.

It wouldn't surprise me to hear of margin hikes later today.

High Plains Drifter's picture

cramer just said a while ago that he doesn't know anyone who owns gold. yet they should. same with me. nobody cares about. nobody i know (except me) owns any and they don't want to talk about it either. so this bull is just getting started really...