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Greek Roadmap Update From Goldman's Erik Nielsen
Greek bailout rumors are fine and dandy, even if you can get 10 for the price of a Kindle these days. They originate roughly every 2 hours, "sourced" by the same lowly bureaucrat in Athens, and day after day are proven flat out wrong. And while rumors are fleeting, and Merkel keeps saying that the only reason why Germany does not want to bail out Greece is because Greece has actually not asked for any bail out (Europe may be doomed, but its bureaucrats sure have taken the art of passing the buck to next level), what we do know are the specific funding milestones over the next two months that alas will not accept rumors instead of accrued interest or bond maturities. Goldman's Erik Nielsen provides a wonderful revised roadmap for what will happen in the immediate future, not what may happen in order for Greece to have its cake (European bailout) and eat it too (avoid riots that may soon be put on the escalating warfare conviction buy list). In the meantime, our belief is that every day that concludes with no bond deal announced, will cost Greece another 15 bps in yield for whatever GGB issue the country finally comes to market with. Today it is 7%, tomorrow 7.15%, a couple of years from now: 100%, then 1,000% after that, etc.
From Erik Nielsen:
Given all the rumours flying around today on Greece and the possible financing, a number of people have asked me to update my “Greek roadmap” for the next three critical months that I have circulated on earlier occasions.
As a reminder, Greek PM Papandreou said last week that the government is funded through mid-March; the press has reported that they are contemplating a 10-year bond issuance to get through May, and a number of European politicians have hinted at a bail out plan being prepared in case its needed, possibly in the order of EUR20-25bn, and possibly via bond placement with state-owned institutions, including KfW in Germany.
Our view has long been that IF official money will be needed, then it’ll come very late in the game, and not “pre-emptively”, and that it’ll be relatively short term money (maybe 6-months money) bridging the Greek government over the April-May hump.
Here is what we know:
March 5:
PM Papandreou meets with German chancellor Merkel in Berlin. (If I were to be wrong on the issue of the EU not offering them “pre-emptive” financing, I would be absolutely shocked if such pre-emptive financing were to come ahead of this meeting.)March 9:
PM Papandreou meets with US president Obama in Washington. (This is a long planned meeting and entirely unrelated to the financial crisis.)March 10:
EUR1.65bn in coupon payments.March 15:
Deadline for the Greek government to spell out the implementation deadline for the additional measures discussed last week with the delegation from the Commission, ECB and the IMF, and to be fine-tuned this week in meetings with Commissioner Rehn. These are likely to include a 2% increase in the VAT rate, further increases in fuel surcharges, a doubling to 20% in cuts in supplemental income, as well as further cuts on the pension front. There are also discussions of further structural measures, including the abolishment of the present layoffs legislation that limits layoffs to 2% of the workforce.March 16:
Ecofin and Eurogroup meetings to evaluate the measures.Second half of March:
If the government has not been able to raise the necessary funds in the commercial market during the first half of March, then this would be the most likely period for the Euro-zone governments to pull the bazooka out - in the form of implementing art 122. I suspect that the money would be relatively short term (six months or so).March 20:
Coupon paymentsApril 20:
EUR8.2bn in redemptionsMay 19:
EUR8.1bn in redemptions
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Why will anybody in a right-mind invest (buy bonds) in Greece?
PS
I have almost 25-years old MBNA-insured California muni bonds paying 8%. 3 months ago, I asked my broker to sale. His reply: no bids.
Thanks God, originally they were 14% muni bonds adjusted 7 years ago to 8%. So, I was paid off a long time ago and they are still paying...
I call bullshit..... I trade CA paper. The only 8% coupon, 25yr old bonds left in the market place are either pre-re's or they're defaulted/ workout bonds.
Either way, there's a bid....
+1
Hi
I lived in Ireland during the entry to the Euro and the European Union. There is no way back I sorry no matter what you say nothing is going to change there here is just a few reasons why:
1. For Ireland to loose the Punt and just start using the Euro it was a 10 year painful process that has so many problems (super inflation, confusion, money getting lost etc, people just milking, the list is immense).
2. Ireland has nothing now except the European Union, maybe its biggest trading partner is still the UK but all Grants all Business is sourced from Europe.
3. The people in Ireland have more faith in the Eurocrats than they do in their own government.
4. The people there would prefer to stay in Europe than leave. I was just back in the last month.
5. Can you imagine the carnage jobs lost and the immense pain that would be cause by leaving.
I am sorry but the Euro and the Union is here to stay any crisis is going to make them bond tighter, much tighter rather than tear it apart.
Also don't forget the devaluation in the Euro over the last while will cover a lot of bad debt.
March 5:
No bailout promise but Papandreou gets sent home with a jar of Merkel's favorite sauerkraut.
March 9:
Papandreou and Obama spend the meeting discussing where gyro meat comes from.
March 10:
coupon payments - enjoy them while you can
March 15:
Greeks get really pissed, burn Merkel in effigy.
March 16:
Ecofin and Eurogroup meetings resolve nothing.
Second half of March:
Euro-zone governments to pull the bazooka out, aim at Greece and pull the trigger.
March 20:
Coupon payments - the last you'll ever see
April 20:
EUR8.2bn in redemptions - yeah right
May 19:
EUR8.1bn in redemptions - you must be joking
Since an EU bailout of Greece is illegal under the Maastricht treaty the deal will probably be done through bond guarantees by a consortium banks like the Deutsche Bank or Caisse des Dépôts.
The markets are reacting like they think this is gonna happen.
You mean the Treaty on the Functioning of the European Union?
Sure, they could do it like that. But then again, what would the Commission think of it? Does it not smell of illegal state aid to national banks? Good luck to you Greece.
This is from one of the largest German dailies, Frankfurter Allgemeine:
http://www.faz.net/s/Rub3ADB8A210E754E748F42960CC7349BDF/Doc~E2E1A5DBED4...
run it through Google translate if you don't understand German. Note the tone of Merkel. Do you get the feeling that her stance towards the Greece problem is to "play by the rules, even if it hurts?" I certainly do.
We’ve joked that if all else fails, then surely Tim Geithner will come to the rescue of Greece.
At least we thought we were joking.
On March 9, Greek Prime Minister George Papandreou visits The White House for a meeting with Obama!
Ron Paul, you need to get on this!
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