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Greek CDS At New Record 762bps, Highest Running Sovereign Spread, Portugal Blows Up Too
Greece 5y CDS now at a meaningless 762bps, which is the highest non-upfront CDS spread for any sovereign. This alone should be enough for another monster day in the decoupled algo-driven US markets. And Portugal is now where Greece was just a few weeks ago: its own CDS just hit 350 bps (40 wider), as its 10 spread widens by 17 bps to 235 bps. While the Greek negative basis is still about 250 bps, Portugal is still less pronounced. We expect the Portuguese basis to hit negative territory soon. According to CMA the biggest wideners are all Spanish and Portuguese entities: Enel SpA at 137.07(+16.04), Banca Monte dei Paschi di Siena SpA (SUB) at 215.22 (+23.25), Banco Popolare SC at 164.46 (+15.67), Banca Monte dei Paschi di Siena SpA at 122.64 (+10.82). As for Greece, it's too late: Germany says country may have to leave the Eurozone, as we suspected was Germany's intention all along.
- Says Germany still might withhold aid to Greece
- Says payout depends on Athens meeting aid conditions
- Says euro exit plus devaluation might benefit Greece
- No EU provision for quitting single currency zone
Greece might have to quit the euro zone for a time if the country failed to tighten its belt sufficiently to qualify for emergency aid, a budget expert with Germany's junior coalition party said on Tuesday.
A temporary exit from the single currency might benefit Athens if accompanied by a devaluation, the Free Democrats' (FDP) Juergen Koppelin told Deutschlandfunk radio.
The EU treaty makes no provision for a euro zone member to quit the single currency, and top regional policymakers including ECB president Jean-Claude Trichet and Eurogroup chairman Jean-Claude Juncker have dismissed the possibility of Greece doing so.
"One may have to say no (to aid) if Greece does not meet conditions and the country just comes along to get money under more favourable terms from the euro zone than from banks," Koppelin said.
Asked whether a German "no" meant that Greece would no longer get any money, Koppelin said: "That can't be ruled out, right up to the point where Greece would have to leave the euro zone for a time.
"This is not (monetary union) breaking up. The Greek currency could be depreciated. That could even help them with exports." Koppelin gave no further details of how a Greek exit from the euro or a devaluation might be structured.
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Lol, it happens every time there's a prospect of currency devaluation - "hurr durr, it helps with exports", despite the fact there could be no strong export sector in the country.
I know... Export what, exactly? And to whom?
C'mon - when my sis-in-law buys feta at Costco the label has Greek characters on it....
and I've heard there is a lot of money on the sidelines waiting to snap up scenic ruins.
Greek tour guide: Ere we 'ave a luvely set of ruined columns that date to oh, the land before time.
Chinese investor: Can I buy both of them and lease the land from Greece for a thousand years?
Greek: Sign here, my little friend. We'll even throw in a pair of front row seats for tonight's riot at the Acropolis for your lady friend.
In the sense that Tourism brings in hard currency, and lowering the costs of vacationing in Greece would attract increasing numbers of tourists, then I think there is sense in that statement. Tourism is, after all, one of Greece's main income earners but it has lost business to Turkey and other neighbouring countries in recent years due to substantial increases in the cost of visiting Greece. A lower exchange rate may help revitalise that part of the Greek Economy. They're still screwed though, overall.
there just should be exports, come on lets all wish realllllly realllly hard.
Not exports but imports, as in imports of tourists.
As a Greek-American one of my biggest complaints with Greece going into the Euro so many years ago is that it affected the tourist trade - ie its bead and butter. With the difference in value between the drachma and other heard currencies, Greece was a 'cheap' vacation. I still have an old copy of Frommer's 'Greece on $50 a day' somewhere in the office. You try vacationing in Greece now for anything less than $200 a day.
When Greece went on the Euro, Greece became the same cost wise with the rest of Europe. It became just as expensive to visit Paris as it was to visit Greece.
Rebound in tourism would also require that overall situation remains stable - transport functioning, workers not on strike etc. I'm not being a judge on Greece here, but I've seen how devastating devaluation can be, because essentially it is usually done on the backs of the population, who usually doesn't like it. So the overall effect of weaker currency on costs can be offset by the mess that ensues. Not to mention there could be some quite substantial outflow of capital associated with it.
All in all, devaluation is a crazy measure, which to be pursued when all others have been exhausted. It may help with balance of trade eventually, but makes most of the population significantly poorer almost immediately.
Slow cooked roast PIIG, um um good!
The blow up in Port. spreads doesn't indicate just instability of the financial situation within Port. but a greater instability within the EU. If Germany is having such a hard time saving Greece this year, will it be easier for Port. or Spain, or a second and third round of saving the Greeks?
If I were a geologist I think this would be called a stress fracture right?
The ECB seems to treat Euro sovereign debt has equal or inferior to corporate paper, if you follow this logic then Greece can default and remain in the euro zone.
If the Greek debt holders take a 50% haircut or even a 100% decapitation then Greece could easily raise more money as their private debt load is much smaller then their anglo saxon and Iberian counterparts.
Argentina tried that, but no one came around to loan them money a second time.
Argentina is great if you have money AND have a way to fit into the local culture - preferably out in the boonies. Neighboring countries wish they had it 'as crappy as Argentina'.
Check out this guy's blog from Argentina.
http://ferfal.blogspot.com/ - see today's repost of the article in the WaPo.
Thanks for the link, good one
Sure they will - the interest rate is high because they simply cannot pay the debt, it will now be compounded to infinity.
When Greece defaults their money supply will contract and force internal costs down but once things settle down they will easily access money albeit at a lower volume and perhaps a higher interest rate then a few years ago but not the impossible rates now asked.
Please realise that I personally would not do this until all external bank debt is liquidated but that does not seem to be on the agenda of the ECB but events may force their hand.
This is still a possibility for both the Iberian and Irish economies which share a common characteristic of high private debt loads and much lower fiscal debt.
A destruction of paper debt to sustainable levels will in the long term kill the gold market and restore the value of the remaining debt load.
Let me add --finally some talk of getting them out of the Euro is on the table, at least they're examining ALL the options, instead of half baking it and saying 'it's not an option.'
yeah but that chick Dominique is really gonna eat crow...
And Germany loves it, until it comes back to bite them in the ass:
'we'll give it to the greeks... it'll be like... this big.' - merkel
(note this is a rough translation)
Germany wants to throw the olive-pressers under the bus. Who's next? Spaghetti twirlers beware.
Merkel fears the elections in Northrhinewestfalia in two weeks. She tries to do nothing before that date. Whatever we are all doomed.
Merkel is being ill-advised. She should be showing leadership here, instead she is caving into her political constituents. As I wrote above, a weak Europe is not in Germany's best interests. They're sewing the seeds of their destruction.
Germany should quit the EU, they are carrying the deadbeat nations.
thats true. Merkel had some good thoughts during the recent crisis, but she isnt strong enough to lead. On the other hand, this 45 or more billion credit help wont change anything longterm. Its too late to react now. The deflationary debt spiral is out of control. Have a nice day everyone.
Merkel should indeed show a leadership and kick that corrupt, irresponsible agrarian country out of eurozone.
Perhaps she simply recognizes the reality that there is no support for any further bailouts, anywhere in the world.
i hope so. But after the elections it doesnt matter if there is any support...
Be carefull longs. Things will become complicated.
http://midasfinancialmarkets.blogspot.com/2010/04/it-was-not-bullish-monday-robots-took.html
The elites/FED in USA are terrified that the masses will wake up and realize..WE ARE GREECE.
Watch those treasury notes today to see if anyone has that light bulb moment.
The elite have all ready ensured the masses are too stupid to understand anything out of the Treasury. The only thing that terrifies the elite is the thought that American Idol might be pre-empted, as that is the only action which will move the masses.
Enel SpA is an italian company, but that´s just a detail ;p
Well, it looks like Germany has signed on to my mantra:
Greece must be destroyed!
Sorry to all Greeks everywhere. It is nothing personal but if we don't have an example of the insanity of deficit funding of govt services (and salaries) the country cannot afford, we will never wake up.
We may very well not wake up anyway but since loans to Greece will only put off the inevitable for a few months (to years), I don't feel bad hoping that Greece is forced to default. It may be that Greece will become violent (I hope not) or perhaps they will become wise and find a path to economic sustainability (we can only hope).
Regardless, we are all Greeks now and unless we face that we are all headed toward default and disaster, we cannot hope to avoid it.
Perhaps Germany's short sightedness will prove to be the source of clearer vision for us all to see the fiscal disaster looming and avert it.
Extend and pretend is not a policy is it a death wish.
On a long enough timeline the invisible hand will fix it.
The best part of this episode is that the rapid widening of Portuguese, Spanish and Irish bond and CDS spreads has got to be giving everyone pause and, I hope, making them come to the realization that "helping" Greece is not going to solve the next problem. If anyone at the IMF meeting has an IQ north of 50 (not necessarily a given), they are sitting down to figure out what to do about the larger problem. The sad part is that there's probably not a snowball's chance in hell that's going on - particularly because ther ain't no leadership. And certainly not from Tiny Tim and Gentle Ben.
Don't forget, the leader of the IMF is a member of the French Socialist Party. So he sees the gvt as a fix for every problem.
So he will want to fix Greece...then Portugal...then Spain...
Of course he doesn't think about the fact there isn't even money to bailout Greece.
+10. Thanks.
Greece? Greece who?
If you boot out every country which is too weak to belong in the Germanic version of the EEC (and I'm not critical of their point of view), who is left?
The Grand union of Luxembourg and Germany , the only question is where will the financial capital be located.
In truth Germany holds our paper obligations , not only will it enter a classic depression reserved for a surplus exporting country but will suffer massive write downs from its "investments" in these countries.
The question not asked is why Germany created huge surpluses for itself and subsequently invested this not in its own country as France is liable to do but in second rate Catholic/Mediterranean countries who have a history of malinvestment stretching back to the days of the reformation.
This is not (monetary union) breaking up. The Greek currency could be depreciated. That could even help them with exports." Koppelin gave no further details of how a Greek exit from the euro or a devaluation might be structured.
And don't let the door hit you on the way out!
The biggest wideners mentioned above are all Italian corporations, not Spanish nor Portuguese.
Thats what I've been saying for weeks now, Germany wants to make the austerity programs so nasty and costly that it forces Greece to leave the EU. Hell, they lied their way into the EU and instead of fixing the lie while they where enjoying the benefits of being in the EU, they racked up the loans and made it worse.