SocGen Tries To Make Sense Of The Complete Chaos That Is Europe Ahead Of The Greek Vote Of Confidence, Fails

Tyler Durden's picture

If anyone has a clear idea what is going in Europe, you are smarter than us, and may move on to a different post. For everyone else, here is a must read piece from SocGen that tries to make sense of what is rapidly becoming the biggest clusterfuck in modern European history, in which everyone hates the outcome that is predetermined by the bankers, yet nobody knows just how to achieve it.

Courtesy of SocGen's James Nixon.

The initiative now lies with Greece

The morning after the night before; or is anyone really sure what has been agreed so far by the Eurogroup over the last two days. How much one wonders is an agreement "in principle" actually worth? This being Europe details of the plan continue to emerge from disparate sources. It’s now clear that some of the ideas discussed by in March have re-emerged. Hence the effective lending capacity of the EFSF is to be increased to its full €440bn by increasing the government guarantees from 120% to 156%. At the same time, in an attempt to make it easier for Greece, Ireland and Portugal to issue debt in their own name, the Eurogroup has agreed that ESM financing to these three countries will not be senior to existing debt. Beyond these initiatives, the two hurdles to a new Greek bailout remain agreement on the exact form of private sector involvement and getting the Greek parliamentary approval for the latest round of austerity measures.

On the former, German Finance Minister Wolfgang Schäuble has indicated that he wants to open discussions with private creditors to secure their contribution. This hints that Angela Merkel’s much trumpeted compromise with Nicolas Sarkozy on Friday is less than a complete  capitulation. Weekend press reports suggested that Mr Schäuble intends to pitch a "compromise" to the ECB which would see the EFSF issue debt which could be offered to the Greek banks. This would be consistent with the efforts to re-dimension the EFSF and earlier hints that the lion’s share of any private sector contribution would fall to Greek banks. Of course, how the ECB views this compromise remains to be seen; certainly the idea of the Greek banks taking on new debt that they can post as collateral at the ECB smacks of monetising debt. Mr Schäuble said on Monday that no "additional incentives" are needed to get investors to contribute voluntarily to a new aid package for Greece. "The incentive lies in the fact that everybody, especially creditors, has an interest in a good, stable development," Mr Schäuble told reporters after the meeting. "And because they have an interest, they also have a joint responsibility and that does not require additional incentives."

What is so surprising is how much the Eurogroup appears to have handed the initiative to Greece itself; if the Government falls after Tuesday’s vote of confidence presumably we reach the point where the crisis starts to get really sporting. And, if there weren’t hurdles enough, the latest from Mr Papandreou is a referendum on the whole kit and caboodle in the autumn. The risk for the Eurogroup is that the gambit of pressuring Papandreou may now backfire with some of the Greek press seeing this as a full frontal attack on the PM. In many respects the situation in Greece very closely mirrors the political situation in Portugal. The right-wing business orientated opposition is unhappy that their spendthrift  socialist government still haven’t bitten the bullet and undertaken root and branch reform of the public sector. Hence Mr Papandreou continues to rely too heavily on hypothetical increases in tax revenue rather than wield the axe over his own supporters. As in Portugal, the opposition may be prepared to bring down the government over this if they can and force new elections. This would leave the Eurogroup having to negotiate with the different political parties in Greece in order to secure agreement on further austerity.

There will now be another extra-Eurogroup meeting on 3 July with the aim of finally agreeing a new Greek package conditional on Greece having finally passed its Medium Term Fiscal Strategy. Parliamentary approval of new deficit cutting measures and of the privatization plan would "pave the way" for the disbursement by mid July of the next €12bn tranche of bilateral lending to Greece. In the interim European Commission and Central bank officials alongside the IMF will be back in Athens this week to draw up a "memorandum of understanding" with
the Greek government – providing it survives the vote of confidence on Tuesday. The Greek parliament will vote though the Medium Term Fiscal Strategy based on the "memorandum of understanding" on or around June 28.

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chump666's picture

It's going to be historic, with the PIIGS in succession wanting to all default, there is the contagion.

ANd the US markets have completely lost the plot = major bulltrap

narapoiddyslexia's picture

Sudden Debt, where are you? This is your bailiwick, dude.

Broomer's picture

Sudden Debt is from Belgium, right? Probably he had a heart stroke after reading this.

Or he is too busy selling everything he has and using the proceedings to buy PMs.

topcallingtroll's picture

Sudden debt is from belgium but i always see him posting in late mornings in america like he is keeping an american schedule.

That boy sometimes sounds more american than my new york friends.

Yen Cross's picture

 Got ya game on? Time to trade!    Yen

OrdellRobbie's picture

And EUR goes to 1.55

CompassionateFascist's picture

Euro/dollar are port and starboard of the same ship foundering in an ocean of debt. It lists one way, it lists the other, as the increasingly frantic passengers rush from one side to the other. Which side will take water & go under first no one knows, nor does it matter for the ultimate outcome: the ship sinks.

magpie's picture

or the trilateral lean-to of the three drunkards Yen, Dollar and Euro.

Yen Cross's picture

 You to ya Barkie little bird! Money doesn't sleep!

zen0's picture

The solution is to make both sides as close to even as possible. Dollar Euro parity, coming to  a forex cafe near you.

Long-John-Silver's picture

The deck chair arrangement must be perfect in order to have the proper effect on the passengers. When does the band appear playing Nearer my God to thee?


MisterMousePotato's picture

That is to metaphor what haiku is to poetry. Well done.

slewie the pi-rat's picture

LOL...i read it, anyway...

skepticCarl's picture

It's the old cliche:  When you owe the bank a little bit, it's your problem.  When you owe the bank a lot, it's the Bank's problem.  Greece owes just about everybody a lot, and Greece will set the terms.  If the Banks (ECB et al) don't like it, Greece will tell them to stand in line to receive their new Drachma's along with the rest of its creditors.

I am a Man I am Forty's picture

yeh, it's pretty funny really, you got all the politicians and bankers posturing and saying a bunch of nothing....painfully, slowly realizing the can to kick down the road has left town, and then you got Greece over there, the turnip, saying fuck off.

zippy_uk's picture

The only bloke to get anything organised in Europe was from Austria - and it ended badly.

Other than that, all other European politician lead solutions end in abject failure, so Greece is toast, the EURO is toast and Europe is toast.

Enjoy the farce while it lasts.

Franken_Stein's picture


That's a gross overstatement.

Just because a monetary system fails, doesn't mean that everything is lost.

Or that this is the end of the world.


No one got killed.

No infrastructure destroyed.


It's just some numbers on some bank accounts, and some pricing signs.


This is not the first time we saw a currency reform in world history,

and certainly not the last.


So what.


zippy_uk's picture

I doubt many Argentinians thought that when their currency collapsed in 2001, protesting out of hunger...

topcallingtroll's picture

That's not true

There was an earlier guy from Corsica.  He organized perhaps a bigger portion of europe than that jewboy from Austria

narapoiddyslexia's picture

And before that there was Charlemagne. And Julius Julius Caesar did a bang up job. And there were all those popes. Never worked.

narapoiddyslexia's picture

The latency is terrible. Is it my ISP, or is someone messing with ZH?

ike's picture

>>If anyone has a clear idea what is going in Europe, you are smarter than us<<


I am not smarter than you but Bismarck is. A 150 yr ago he said:

It is easy to build a tower in air, but very difficult to tear it appart.

That is exactly what is going on in Europe

Stuck on Zero's picture

The end will come not because the people revolt against the Illuminati but because the Illuminati starts to come unglued.

eureka's picture

Only if the people are sheeple incapable of motivating and organizing themselves; i.e. only if democracy doesn't work because people are too stupid to participate in it - well, let's see, where do people participate n democracy? 

US presidential election voter participation: Ca. 40%.

EU national parliamentary elections voter participation: ca. 90%.

So where, in this world, are the passive, disengaged, led and corralled sheeple concentrated?


riley martini's picture

 Like the Greeks that are out in the street some of us are past the voting scams. When the Fascist have taken over and you lose every election you stop wasting the trip to the poll .

scratch_and_sniff's picture

Its like euro quantum physics, if you think you understand it, then you really dont understand it.

ddtuttle's picture

When you think about it, Europe's problems have always stemmed from some idiot trying to "unify" it.  Usually, he uses lots of force and kills a lot of people in an attempt to "organize" what is inherently chaotic.  Napoleon and Hitler are obvious examples.  But you can go back to war after war where some idiot king thought he could conquer europe and convert it into a superior country ruled by him.  And all these guys had some measure of good intentions.  That this has been tried so many times and has never worked should be a clue.

It matters not that this time it's bunch of recycled hyper-socialist bureaucrats trying the same idiotic stunt  The result will be the same for the exact same reasons.

eureka's picture

Is there anything worse than provincial HomeLand US citizens feeling smug and superior to places they do not understand, have never visited and therefore can only spout mindless cliches about?

It may make you feel great to say "stupid" three times back to back, but it isn't very informative. Instead, try to make a case for the superior character of US social cohesion and democratic participation in US political and social economic processes. Your theory, should you have one or be able to manufacture one, will be swiftly tested in the next 12 months.

dolph9's picture

The United States is still one country, whereas "Europe" is not. 

It would be like trying to organize all of North America and the Caribbean under one currency, and then wondering why little Haiti or Cuba is resulting in all of these problems.

Lednbrass's picture

I would say the US is actually multiple nations held together by a common language, currency and force. There is little common feeling and in general the regions want vastly different things out of life and government. We arent a people- its more of a very dysfunctional family made up of Billy Yank, Johnny Reb, the Marlboro Man and Suzy Moonbeam.

If and when the currency and/or economy unravels the political structure will also.  I dont see the south sticking around for long, it is to the US what the Ukraine was to the USSR.

bakken's picture

What was the UKRAINE to the USSR???  A metaphor?  Seriously, if the South wants to go, I wouldn't fight and I don't know many guys up here (ND) who would either, and I hope they take Florida and Texas with them, fine with me.(Run on sentence, sorry).  We'll be eating sugar beets and winter wheat but we'll have oil.


falak pema's picture

Resolution to the PIGS problem is very simple : example Greece.

Today, Monday,  at midnight Greece officially leaves the the Euro and creates the NEW Drachma. It is devalued 40% to the EURO relative the OLD Drachma rate. On this basis the banks issue a unilateral voluntary "hair cut" signed at 10 am Tuesday morning, with a 50% write down of Greek debt. ie : The banks take a knock of around 175 Billions Euros with a new payment extended schedule offered.

On Tuesday, mid-day Greece officially re-joins the EUro group again. Its assets and liabilities are now revalued in the New Drachma rate. Greece now has less debt and is a darn side competitve.

Rinse and repeat for Portugal and Ireland. Problem solved and German and French banks are much leaner but the sovereign debt is over. 

ECB issues bonds from then on based on a common fiscal policy of all EU members. No more national bond issues. Voilà my recipe made from Greek honey and rich olives. 

riley martini's picture

 Exactly right eureka Napoleon was the greatest champion for what we in the USA consider Freedom and Liberty in the history of the planet . Napoleon was the success of the Citizen as a share holder in their Government , while the Brits bowed to their king. Napoleon was determined to spread Liberty around the World even if he had to kill some of the ones they were trying to free.

Hacksaw's picture

Is there anything worse than provincial HomeLand US citizens feeling smug and superior to places they do not understand, have never visited and therefore can only spout mindless cliches about?

To answer your question, yes, the European little penis syndrom is worse.

eureka's picture

You have it wrong; it is the guy with all the guns who has the small penis - that's why he needs all the guns. Psyc 101. Happy studying.

Rynak's picture

This may be true NOW. But 10 years ago, europe was an immature bootlicker of the USA, with an inferiority-complex. Heck, the whole EU and EMU thingy was promoted with the message of europe no longer consisting of small nations, but instead being a bid bad block, like the USA, russia, etc. Now, they may have enough confidence (and resentment towards the USA), to no longer feel inferior for such stupid reasons, but back then they did.

Rynak's picture

Fully agree. Europe consists simply of too different cultures and economies. And why should this be a problem that needs to be "fixed"? There is no need to make all europe same. All that may be useful and desireable, is to have an efficient way for those nations to discuss and cooperate on mutual interests, and with mutual consent. Perhaps also the ability to launch projects in which multiple nations (not necessarily all of them) participate. But not as a "top-down hierachy", but instead those nations cooperating with mutual consent.

We don't need europe without borders.... we just need an efficient way to cooperate and coordinate with mutual consent.

vamoose1's picture

i bow    im  not  worthy

richard in norway's picture

i still can't understand why greece must leave the euro if they default


will Illinois leave the dollar zone when they default

magpie's picture

or leave the eurozone without defaulting

BlackSea's picture

No, but maybe they can join the Euro

Spastica Rex's picture

I hear the gyros in Greece are great.

AnAnonymous's picture

i still can't understand why greece must leave the euro if they default


will Illinois leave the dollar zone when they default


Quite simple actually. Europeans are trying US recipes, they are on the same path as the US was in the 1800s, how they built their so called melting pot.

So if you understand gangs, you understand the following with ease.

The Euro currency is sold as a protection. With outside threats put in the lime light. Yet one other threat and one very actual is the Euro threat itself.

Being part  of the Euro currency protects from the Euro itself.

If Greece defaults and stays in the Euro, they will keep being protected from the Euro threat.

Once out of the Euro, they will have to face the Euro threat and Europeans will use Greece as an example of what happens when you leave the Eurozone.

"If you let the gang down, the gang lets you down. Better stick with us if you dont want to fear us."

If you understand the gangs, you understand US citizenism.