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Greek Rescue Package Insufficient, Will Need More Money
We recently highlighed the words of Erik Nielsen who stated that the E110 billion Greek bailout package will simply not be sufficient, expecting that at least another 40 billion will be needed for an effective rescue operation. Today, the WSJ and German Bild, get on board this theme, likely causing further anguish for Greece and for the euro, as it once again highlights just how incompetent European bureaucrats are. Ironically, in their attempt to lowball the rescue numbers, they may have just doomed the package, because we are confident German opposition (and you should see the cover pages of all German newspapers - there are 99 headlines blasting the rescue for 0.5 praising it) will use this disclosure to mount an attack on the "openendeness" of the what may soon turn out to be a neverending rescue package. And this does not even contemplate Portugal and Spain.
The WSJ is surprisingly blunt in its estimation of the Greek disaster:
The €110 billion ($147 billion) three-year Greek bailout by euro-zone countries and the International Monetary Fund won't be enough to cover Greece's costs, an examination of Greek financial figures shows, setting Europe up for more tough choices if private markets don't start lending again
In essence, although the bailout envisages three-year loans, the EU and the IMF have given Greece a 12- to 18-month audition to show it can change, economists say. Then, it is back to the markets. Greece needs a lot of cash.
Even if Athens can pare the budget gap as much as promised, it will run significant deficits in the coming years that need to be paid for. A deficit projected to be 8.1% of gross domestic product this year is expected to fall gradually to 4.9% in 2013. That implies total deficits over the coming three years on the order of €50 billion.
Greece also will need to pay back past years' borrowing. According to data from Reuters, Greece has about €70 billion due between now and early May 2013. That brings the total financing to at least €120 billion.
Counting the continued rolling-over of short-term debt, Goldman Sachs economist Erik Nielsen estimates Greece's needs at about €150 billion over three years. The sum of €110 billion has "taken the market out of the equation for at least 12 months," he says, but not three years.
As we pointed out yesterday, the euro staged a dramatic reversal after going as high as 1.33, subsequently closing much lower, and now at around 1.315, as round number N+1 of fears that the bailout will not work enveloped the market. Too a big extent the EC itself was responsible: "An official of the European Commission, the bloc's executive arm,
said the bailout is indeed "a little short" of Greece's entire need.
But, he added, the bailout plan foresees that "they will get back to
the market in 2011."
Ironically, with the explicit support of the ECB and the fact that the Bank now accepts any worthless Greek government bond as collateral, the only buyers for Greek bonds may soon become other European banks, which already are on the hook for hundreds of billions in exposure to Greece. Essentially, all Europe is doing, is precisely what the US did in in late 2008: it was went double all in, even with money it can never hope to have.
ECB President Jean-Claude Trichet had said explicitly in January that the ECB wouldn't take such a step. The ECB's past rule had been to accept only bonds above a certain minimum rating.
As an immediate consequence, the new collateral rule will ward off any liquidity crises at Greek banks, which are major holders of Greek debt. They will be able to get cash from the ECB by pledging their Greek bonds as collateral.
More broadly, it may make euro-zone banks more likely to buy Greek debt, because they know they will be able to get cash for it. Greece could sell short-term debt to local banks, which could then turn around and place it with the ECB, no matter what the country's credit rating. In effect, "you could be in a situation where private financing becomes irrelevant," says Daniel Gros of the Centre for European Policy Studies in Brussels, "and Greece is financed by the ECB."
Indeed - let's disintermediate the private markets altogether: after all public and sovereign risk is now the only risk outstanding, as all developed nations have now taken private risk off the table entirely. And with that the Keynesian seeds of certain European destruction are now guaranteed to bloom into yet another mutated plant of financial and economic cataclysm.
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Some of you might have read my comment this weekend about Greece.. I sent it to Tyler for possible publication as a guest post.. it never got posted..
Now who the f*ck just told your about Qatar possibly bailing out Greece on Sunday night!!!!!!!!!!
Qatar govt eyes $5bn investment in Greece
“This is a most welcome proposal for Greece at this time of economic hardship,” said Papandreou, whose country agreed a 110bn euro bailout by the EU and the IMF on Sunday to avoid default
http://tinyurl.com/2dpehw9
did the article on SOH that Tim published and
here.. http://www.bostonwealth.net/2010/05/01/greeces-...
...does Ben have contacts feeding him this information.. lol...or is he just that good....
I will be launching my $600 a week Mideast newsletter covering Iran, Abu Dhabi, Gulf Cooperation Council, etc.....time to forget about MortiES Premium at $100 a month.. found my true calling!!!! (j/k)
..such hubris at 4 a.m.. must be my heaving drinking!!!!... nah just exited that I got two world class stories correct that no other world class reporter was able to trump me on!
I remembered your comment as I answered it.
You claimed that ultra-rich Qataris were about to bail out Greece, this was settled on a meeting with Angela Merkel.
Still, $5bn falls short to claim a bail out.
Actually the meeting was between the Emir of Kuwait and Merkel..but hey $5bn is a start!
Ahh, so money does grow on trees who would've thought?
Keynes wasn't an economist he was the greatest arborist ever apparently.
Linking Keynes with 'deficits to infinity,,, and beyond' is a bit of a misnomer but i like your analagy just the same.
Can't Greece just do what GS did and short their own debt, default and then come out on top?
++ Haha, good one..
Basically they are already doing that.
http://www.zerohedge.com/article/biggest-greek-cds-speculator-has-been-u...
Does it ever feel like we're all staring into a giant, incredibly obvious crystal ball?
For months before it hit the mainstream media, we knew Greece was going to go tits up.
Then we all knew that Germany was going to cave in and bail out their banks.
Then we all knew that the bailout was going to be insufficient and that Greece would come back for more.
...and we all know Spain and Portugal are next.
It almost gets annoying waiting for the obvious to happen, and for everyone to act surprised when it does...
Now we are talking. Gunnery Sgt Hartman says "Outfucking standing!"
What I find amusing is the fact that Greece just assumes it can bring it's deficit down to 3% over the next few years. Greek GDP is already contracting by 4%, how much is it going to contract due to austerity measures, strikes and riots etc?
One could realistically see their economy shrinking by 6%, 7% yearly given that much of their GDP is of course dependent on government borrowing and spending.
This begs the question, how much do they have to cut spending to get the deficit down to 3% taking into account contracting GDP as well? I'm guessing that current predictions more or less assume that GDP will stay the same?
Looking at it in this light, default seems inevitable...
Okay, Fed+Treasury now equals ECB+EUBanks.
So the local banks are eating the placenta of a deadborn Greek obligation, while hoping to minimise their losses on their other Greek positions. Cannibalization at its finest.
A view from Europe: I think you have to view
the bail-out both with economical hindsight and
political analysis: all the 'unofficial experts' have
come to the conclusion that Greece will need 150
billion euros, the IMF plans to stay ten years in the country,
the German government was out
in full force yesterday, Frau Merkel on all television
channels, emergency government council yesterday
morning to get the Bundestag to vote on this
package by Friday. The lady chancellor also
has called for a European summit on the 10 th of
May, the biggest problem is what happens next
afterwards, how are they going to be able to
continue this 'beggar thy neighbour''s politics
when Portugal needs to be backstopped ?
Once you use the bazooka it destroys the private market. Still awaiting the bazooka.
I'm pretty sure they are just happy to see you.
With the announcement that the ECB will take the Greek bonds at full face value for repos, it is assured that they will end up with all of it.
Set up that SPV and buy the heck out of it. Current coupon yield near double digits. Put it to the ECB for financing at 1%. Suck out the yield spread and be a hero until the music stops. When it does let them take over the SPV with nothing inside.
The check they have pledged to write to keep it going for a couple of years is nothing compared to the eventual haircut they are going to end up with on ALL of the outstanding Greek debt. If I can see that now then I must suppose that it has already taken place before the door isw slammed. It will have to lead to a very bad ending.
It's like 2 drunk guys that are drinking in the pub, flatbroke. And when they have to pay the bill, they wave at some idiot at the end of the bar, and tell the bartender he's paying and then run away.
Germany is the idiot at the end of the bar...
beiing german i hate to say you´re right but unfortunately there are millions of idiots in this country that actually believe the idiot at the end of the bar is doing the only right thing because "there are no alternatives" :(
This is becoming a familiar story. Govt entities buy up crap paper - because there is an unprecedented panic - of course. Then they plaintively hope "private investors" will take out the govt at some point! Good luck wid dat. What the govts are doing is sytematically destroying one market after the next. There will be NO private investor appetite for US mortgage paper of Greek sovereign debt. None. It will take decades and a lot of luck to even reestablish a market for these types of toxic instruments.
A well functioning market is like a souffle. Everything works - like magic. Once the crude/corrupt imbeceles in govt think they can shape prices to where they would like them to be using brute force - its over - the souffle collapses. All you have left is a lump of eggy mess. And in the future if you want a souffle - well - you will have to start from scratch.
+10. Great post. Bravo.
Currently, SP500 futures indicate that the March 2009 bear market rally may be ending. We should get confirmation this week.
MARKET UPDATES:
http://www.zerohedge.com/forum/latest-market-outlook-0
But where will the ECB get the cash to buy the garbage bonds?
where does the FED get the cash to ...?
I like how TPTB were hoping that private interests would start lending to Greece at reasonable rates (for Greece). You would have to be an idiot, or a central bank, to lend money to Greece for any length of time at, say, %6.
Awesome. They should give Papadroo a TED award.
If they are supporting the bailout with Euros as payment, doesn't the need for more Euro's go up with every day as the value of the Euro slowly heads to PAR witht the US$????