So, Are Problems Over For Greece Now That They Received (the promise of) Money (for the 4th time)?

I was having a conversation with a very respectable young man from the press,
and he asked me the following question, "Last week, I remember you saying that
you thought Greece would default and that could put Europe into recession or
worse. Does the fact that Greece was able to raise debt in the past few days
change your view on that?".

I thought I would post my answer to the blog, for I want my views on this to
be crystal clear. 

Answer:  Absolutely not! Greece has three primary problems.

a. One, it has cash flow issues. The recent bailout "promise" potentially
alleviates the cash flow issues, and at the same time exacerbates them. Although
the 5% rate promise that was offered is less than the market is charging, it is
still more than what will put Greece on sustainable footing. In addition, since
this (4th) bailout "promise" was announced (and still has to be voted on), Greek
banks, stocks and bonds have tanked further, as well as Greece being but on
rating watch negative by the ratings agencies (one of the very few times we
agree on something). I warned months ago about the very banks that have
collapsed (price wise), stating that they were virtually guaranteed to see hard
times. See the Greek banking attachment included (banks exposed to central and
eastern Europe and the Greek Banking Fundamental tear sheet). I warned this time
last year about the Spanish banks. We shall see if that warning bears fruit as
well.

b.  The second problem is that it is insolvent, it spends more than it makes.
Its liabilities (when combining on and off balance sheet items) is more than its
assets. Thus there is a huge capital hole. This hole needs to be filled with
something that will not make it any larger. Offering a highly indebted entity
something that will make it more indebted is not a viable or sustainable
solution to the problem, it is just kicking the can down the road.

c. Third, Greece has a significant, and deservedly so, credibility issue. It
has been caught lying too often. To be honest, many other nations have the exact
same issues as Greece, but many of them have stronger economies and are able to
print their own money, hence that flexibility will allow them to kick the can
down the road further than Greece can. Attached are other Country analysis, and
pay particular attention to these two posts: Smoking
Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware! and
Lies,
Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

Below you can find the entire public version of the sovereign debt crisis. I
will attempt to release the finale of the Sovereign debt crisis research which
will show exactly how each country is linked into another, on a global basis.
Thus, one can visualize how a Greece or Spain or UK default can potentially
bring down the whole system. It was an immense amount of work, and also
something that one will be very hard pressed to find in the mainstream media.

In the meantime, Bloomberg reports that the bond markets (which have been
considerably more rational and realistic than the equity markets 12 months and
counting) unequivocally agree with me: Greek Bonds Show
EU Rescue Package May Be Tapped as Borrowing Costs Rise

April 15 (Bloomberg) -- Greek bonds show the nation may have to tap a 45
billion-euro ($61 billion) international bailout to convince investors it can
avoid a default.

The 10-year bonds were little changed today after declining the past two
days. The yield premium investors demand to hold the securities instead of
benchmark German bunds rose above 400 basis points for the first time since
euro-region finance ministers announced the aid package last weekend...

“There are concerns that the money will not be available,” said Toby Nangle,
who helps oversee 46 billion euros as director of asset-allocation research at
Baring Investment Services Ltd. in London. “There are people who are willing to
place their own money at risk in anticipation of this thing not going through.”

Finance ministers said on April 11 the EU will provide Greece with 30 billion
euros of three-year loans at an interest rate of about 5 percent if the nation
requests the cash. The International Monetary Fund would provide another 15
billion euros. The agreement came after earlier pledges failed to convince
investors that the government is able to narrow a budget deficit that is more
than four times the EU’s limit for members.

... Pacific Investment Management Co., which owns the world’s largest bond
fund, said this week it’s not yet ready to buy Greek bonds. BlackRock Inc., the
world’s biggest asset manager, said that donor countries need to demonstrate
they can withstand a backlash from their citizens.

“I don’t think Greece would go as far as waiting to be seen as failing in the
market, Christopher Pryce, a director at Fitch Ratings in London, said
yesterday. “They would prefer to go to the EU. It could well be a week or two. I
don’t think they could leave it much longer than that.” Fitch cut Greece two
levels on April 9 to BBB-, one rung above speculative grade.

The yield on Greek two-year notes fell the most on record the day after the
aid package was announced before paring more than half that decline the
following two days. It rose to 7.83 percent on April 8, the highest since the
euro’s debut in 1999, according to Bloomberg generic prices. The yield was at
6.86 percent at 8:19 a.m. in London today.

... The cost of protecting against a default in Greek debt for five years
surged 56 basis points to 436 basis points yesterday, credit-default swaps
showed, compared with a record closing price of 443.5 on April 8. It narrowed to
431.5 basis points today.

The
German Finance Ministry would seek “legislative authority” on the loans should
Greece call for aid,bMichael Offer, a spokesman, told reporters in Berlin
yesterday. The lower house of parliament “would of course have to endorse such
authority,” he said, without saying how long it might take. [This short
paragraph says it all. If they haven't sought legislative authority already,
then they aren't taking this seriously. Greece will most likely need the money
immediately when (not if, but when] they call upon it. To wait for legislative
approval and a likely political/legal battle will simply, and unnecessarily
disadvantage Greece from a timing perspective].

France, which would be the second-largest aid contributor after Germany,
would probably be able to obtain parliamentary approval to raise the funds
within a week, Finance Minister Christine Lagarde said on April 13 [but why
not do it now?]. Ireland will pass legislation on Greek aid within the next
couple of months, Finance Minister Brian Lenihan said April 12 [Sure they
will. See
The BoomBustBlog Ireland Fiscal Analysis is Now Available, and Just in
Time!, Ireland may very well need one of these packages itself!].

“If legislation fails in one parliament you may find time is running out
rather quickly,” said David Schnautz, a fixed- income strategist at Commerzbank
AG in London. “You don’t have that much time for trial and error.” [My
point, exactly! And everybody knows this. Greece is being put in the political
test tube on purpose and unnecessarily. They are playing games!]

See "Greek
Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire!
and Lies,
Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse! for
more on my take on Greece. Contact the authors of the Bloomberg story excerpted
above to share your opinions of my analysis with them.

Reporter on this Bloomberg story:  in London [e-mail]

The Pan-European Sovereign Debt Crisis, to date: 

1.  The
   Coming Pan-European Sovereign Debt Crisis - introduces the crisis and
   identified it as a pan-European problem, not a localized one.
2. What
   Country is Next in the Coming Pan-European Sovereign Debt Crisis? -
   illustrates the potential for the domino effect
3. The
   Pan-European Sovereign Debt Crisis: If I Were to Short Any Country, What Country
   Would That Be.. - attempts to illustrate the highly interdependent
   weaknesses in Europe's sovereign nations can effect even the perceived
   "stronger" nations.
4. The
   Coming Pan-European Soverign Debt Crisis, Pt 4: The Spread to Western European
   Countries
5. The
   Depression is Already Here for Some Members of Europe, and It Just Might Be
   Contagious!
6. The
   Beginning of the Endgame is Coming???
7. I
   Think It's Confirmed, Greece Will Be the First Domino to Fall 
8. Smoking
   Swap Guns Are Beginning to Litter EuroLand, Sovereign Debt Buyer Beware!
9. Financial
   Contagion vs. Economic Contagion: Does the Market Underestimate the Effects of
   the Latter?
10. "Greek
    Crisis Is Over, Region Safe", Prodi Says - I say Liar, Liar, Pants on Fire! 

Germany
Finally Comes Out and Says, "We're Not Touching Greece" - Well, Sort of...

The Greece and the Greek Banks Get the Word "First" Etched on the
Side of Their Domino

As
I Warned Earlier, Latvian Government Collapses Exacerbating Financial Crisis

Once
You Catch a Few EU Countries "Stretching the Truth", Why Should You Trust the
Rest?

Lies,
Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

Ovebanked,
Underfunded, and Overly Optimistic: The New Face of Sovereign Europe

Moody's
Follows Suit Behind Our Analysis and Downgrades 4 Greek Banks

The
EU Has Rescued Greece From the Bond Vigilantes,,, April Fools!!!

How
BoomBustBlog Research Intersects with That of the IMF: Greece in the
Spotlight

Grecian
News and its Relevance to My Analysis

A
Summary and Related Thoughts on the IMF's "Strategies for Fiscal Consolidation
in the Post-Crisis

Euro-Gossip
Debunked, Courtesy of Trichet and the IMF!

Greek
Soap Opera Update: Back to the Bailout That Was Never Needed?

Comments

[anony]

Keep your eye on the ball. It's Lord Blankfein and Goldamn Sucks you should be glued to.

[LarryKudlow]

G Pap about to get a pap spear from IMF

[dabug]

Reggie, Leo, I have had an epiffany; lets ask China to dump some 60B (small change) of their toxic US treasuries on the Greece debtors in exchange for preferential shipping rates and the gratitude of all of Greece. What ya think?

[Commander Cody]

Information overload, information overload, this does not compute.  Poof!