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Sun Setting on Greece and Eurozone?
- American Express
- Bear Stearns
- Bond
- CDS
- Counterparties
- Credit Crisis
- Credit Default Swaps
- default
- European Union
- Eurozone
- Fail
- General Electric
- George Papandreou
- Greece
- Iceland
- International Monetary Fund
- Investment Grade
- Ireland
- Italy
- Japan
- Meltdown
- Middle East
- Norway
- Portugal
- ratings
- Raymond James
- Sovereign Debt
- Sovereign Default
- SWIFT
- Turkey
- United Kingdom
ekathimerini reports, Papandreou optimistic following EU summit:
Prime
Minister George Papandreou on Friday lauded his government’s efforts
to dig the debt-ridden country out of serious economic problems as a
meeting of European Union leaders failed to conclude with the agreement
of a comprehensive solution to the crisis in the eurozone.
Speaking
at the end of a two-day summit in Brussels, Papandreou said that this
week’s gathering and the emergency meeting of eurozone leaders earlier
this month both highlighted that Greece is on the right track in
tackling its mammoth deficit.
“We made big sacrifices,” he said.
“The efforts are today recognized by all European partners. The efforts
have delivered results. We need time, but we are committed to put
Greece on a new path, on a modern path.”
Papandreou said that EU
leaders recognized his government’s efforts by rubber-stamping a deal
to extend the repayment period for Greece’s 110-billion-euro emergency
loan package with the EU and the International Monetary Fund from three
to 7.5 and lower the interest rate to 4.2 from 5.2 percent.
“We
were not done any favors,” he told journalists. “The decision was
reached after solid bargaining. We took some very difficult decisions
so we could make our economy viable again… but now we can look to the
future with greater hope. Our strategy has been vindicated.”
Meanwhile,
European leaders failed to produce the much-anticipated anti-crisis
package and delayed until June a final decision on increasing the
27-member bloc’s temporary bailout facility, the European Financial
Stability Facility.
The Brussels summit was clouded by Portugal’s
financial troubles. Portuguese Prime Minister Jose Socrates quit on
Thursday after the country’s parliament rejected austerity measures
aimed at staving off a bailout.
There were also concerns about the
state of Irish banks, which prompted new Prime Minister Enda Kenny to
put off renegotiating the terms of his country’s 85-billion-euro
bailout.
Greece and Ireland were warned by German Chancellor
Angela Merkel that they both still had a lot of work ahead of them. “The
euro has survived a critical test but there is lots of homework to be
done,” she said.
“Member states face many years of work to atone for past sins,” she said.
I wish I can tell you that Greece is rising from the ashes but it's not.
The Greek economy is being put through the wringer and all these
austerity measures have caused a lot of pain. Austerity measures are
going to fail in Greece, they're going to fail in Ireland and they're
going to fail spectacularly in the UK. Ireland is probably looking at
Iceland and thinking about joining them.
What will additional austerity do? It will create more resentment in the
periphery and pretty much kill these economies. After they collapse,
growth will be easy. But don't worry, they won't collapse. Someone was
asking me if they should buy Greek bonds and the National Bank of
Greece. NBG just closed a difficult 2010 and is preparing for a perilous 2011. If you believe this is the bottom for the Greek economy and that Turkey will continue doing well, buy NBG and hold it.
As for Greek bonds, I read an interesting comment from Steve Schaefer of Forbes, Why Euro Debt Matters More Than Oil Prices Or Chinese Inflation:
Mike Mutti, Raymond James’ senior credit strategist, keeps a screen with five-year credit default swaps
for European sovereign debt open at all times. That’s because more
than any other current crisis facing the world – from the devastating
earthquake in Japan to the turmoil in Libya and the Middle East – a
severe escalation in Europe’s credit crisis has the capacity to cause a
repeat of the 2008 meltdown.
Since the Greek debt crisis erupted
nearly a year ago, new issues have cropped up in other peripheral
countries (commonly, if not politically correctly, referred to as the
PIIGS) every few months. You can almost set your watch to it. Though
the disaster in Japan and spike in oil prices put the European debt
issue on the backburner for a time, it flared up again this week after
Portugal’s Parliament rejected an austerity plan, swiftly followed by downgrades to the country’s sovereign debt ratings.
Mutti
acknowledges the challenges facing Portugal, Ireland and Greece, the
three PIIGS in the most precarious shape, but believes the bailouts of
those nations are essentially priced into the market. Fears crop up
every few months, “then the fire is put out when European leaders put
another hundred billion euros aside,” he says by way of explaining the
ebb and flow in credit markets.
We’ve seen this movie before, he
adds, pointing to previous surges in the price of insuring against
default on European sovereign debt. What’s notable though, is that
while previous spikes in credit default swap prices on Greek,
Portuguese and Irish debt were accompanied by similar increases in
corporate bond yields, thus far in 2011 increases in Greek CDS have not
interrupted tightening in spreads of yields on investment grade
corporate bonds to U.S. Treasuries. Of course, as Mutti is quick to
point out, that all changes in a hurry if the credit plight of Spain or
Italy worsens. (See “Europe’s Debt Crisis: Expect More Flare-Ups, But Breakup Unlikely.”)
(Source: Bloomberg, Citi Indexes, Raymond James)
Mutti
doesn’t put too much stock into the bond yields at European sovereign
debt auctions. For all the talk about this or that threshold that marks
the breaking point for a country like Portugal, the CDS market tells
the real story. “I’m a credit derivatives guy,” says the longtime Bear
Stearns veteran who joined Raymond James in 2009. “It’s a swift market
where people express their opinion on the likelihood of default.” Sure,
you could surmise how risky a sovereign default is by looking at bond
yields, “but CDS actually has ‘default’ right in the name of the
product,” Mutti says.
A chart showing
5-year CDS on European debt clearly shows that while the PIIGS are
grouped together, the investment community has delineated the fivesome
into three distinct leagues. Mutti shared the chart below, which shows
the difference in risk traders see in Greek, Irish and Portuguese debt,
when compared with that of Italy and Spain.
(Source: Bloomberg, Raymond James)
If
Italian or Spanish CDS rise into the 400 basis point neighborhood
currently occupied by Ireland and Portugal, it won’t be easily solved by
tossing another hundred billion euro at the problem.
To USAA
portfolio manager Arnold Espe, who also believes a European sovereign
default is the biggest risk facing the global market, government debt
is not an enticing place to be. Owning
Greek bonds at current yields is “ridiculous,” he says, particularly
when he can buy corporate credits with similar yields and less risk,
such as senior secured bonds of TXU (now called Energy Future Holdings)
at 82 cents on the dollar with a 12% yield. Though the energy
giant is struggling under its heavy debt burden, Espe figures he will
still get around 100 cents on the dollar in a bankruptcy filing.
Another
area he sees opportunity: subordinated debt in financial institutions.
Issued by a wide variety of U.S. banks and insurers, as well as other
finance-related firms like General Electric and American Express, some of the bonds offer junk-like yields of 6-7% in return for being a bit lower in the capital structure.
Of
course, Europe creates a risk there as well. Unlike other situations
unfolding around the world – the aforementioned issues in Japan and the
Middle East, but also inflation concerns in emerging markets –
Europe’s debt crisis could have a profound impact on the banking system
that holds the sovereign bonds.
Just like the crisis of 2008, a
major European default could result in a flight from stocks, bonds and
any other hint of risk , and lead firms to crack down on
counterparties. If things were to escalate to that point, Espe suggests
the only port in the storm could once again be U.S. Treasuries, a
trade that would get crowded awfully quickly.
Are
we heading towards a "major European default"? Are macro funds shorting
the euro? Is owning Greek debt "ridiculous"? Of course not. Europe
isn't going to collapse and if you think it is, you're going to be
waiting forever. Europeans drag their feet but they're not dumb enough
to let eurozone collapse. As for Greek bonds, some pretty big sovereign
wealth funds, like Norway, own Greek bonds and the FT recently reported on EU debt swaps stating that hedge funds have been buyers of Greek debt, rather than CDS, and the widening in spreads was instead attributed to panic protection buying by overexposed banks.
But
I know people prefer jumping on the "Eurozone is doomed" bandwagon
thinking that Greece and other periphery economies will implode. I'm
not buying this drama. Let me end by wishing my fellow Greeks everywhere
a Happy Greek Independence Day.
There's one thing you should know about us Greeks. We're warriors, it's
in our DNA. We simply never give up. So let the speculators bet against
Greece. I know that no matter what happens, Greeks will survive and
get passed it just like we have countless times in the past.
»
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I do not have credentials to psycho-analyze Leo's motivations. nevertheless, I doubt Leo gets much business from peddling his wares on ZH; however, Leo gets to soak up our point of view. I would not be shocked at all when shtf, Leo is found sitting on shit-load of PM. He, imo, strikes me like somebody whose left hand has to be watched while his right hand is distracting his crowd. In any case, Leo is the only one that can speak to this.
Shhh, don't say anything to akaka, but I 'm consulting Soros, Brevan Howard, Bridgewater, Caxton, Citadel and a few other top hedge funds. I just write comments on ZH to kill time in between.
The Lesson of Leo: When logic and morality fail, one can always fall back on puerile sarcasm.
You know what your avatar name means in french when spelt backward? kaka : shit.
I'm sorry to say your logic like the tonality of it and its biased diatribe makes it smell like that admirable product for fertiliser. As for equating LK's viewpoint with Benbernankification is a intellectual sleight of hand that leaves a non-initiated to Houdini magic like myself breathless. How can any person with the slightest knowledge of facts equate current FED behavior with classical Keynesian economics. This is blatant robbery by a PRIVATE bank, totally OWNED by the TBTF SCIONS of that FREE MARKET TEMPLE called WS that runs US Government since the shit hit the fans in 2008. Now that is NOT government running private sector as Keynesianism implies. It is private sector OLIGARCHY running the government. Do you know the fundamental difference between these two FACTUAL realities? LK does. I am inclined to believe you don't...That makes the rest of your demonstration a hate rant which aims its shot gun at the wrong target. But that's just what hate does...it makes us mad and IRRATIONAL. Socrates would not be pleased. Change your tone and you become hopefully logical. Stay as you are and you go back to being fertiliser fodder. You may have a bright future.
With all respect, Falak, since I have seen that you are a sincere and thoughtful poster here, you have also not been a member here long enough to have seen some of Leo's earlier, numerous, and much more reprehensible, amoral and vile comments in which he routinely and very explicitly admonished surrender and obeisance to the corrupt and criminal power elites, in violation of the very spirit of honesty, transparency, and liberty that ZeroHedge otherwise stands for.
Leo now appears for the most part to refrain from making such despicable comments, having had them routinely junked into oblivion by other ZeroHedge posters (and rightly so), but that takes nothing away from the fact that he has knowingly and willfully advocated on behalf of the Establishment powers and their sociopathic financial and monetary systems on numerous occasions.
Yes, my comments towards Leo demonstrate hate, and I will not deny it nor apologize for it, unlike Leo's constant apologies for, and explicit collaboration with, the massive corruption and evil inherent in the status-quo power structure.
I respect your views but I still feel he deserves a minimum of respect. There is nothing evil in what he says. He is maybe a Keynesian and it's no insult...even if you violently disagree with his viewpoint, which is perfectly respectable.
exactly
"I know that no matter what happens, Greeks will survive and get passed it just like we have countless times in the past."
Ad if we don't, no worries, there will always be lamb. And tsipouro.
Can't ZH get better contributors than this junk? This is one of the best websites, but they restrict their contributors to some trashy people with trashier ideas.
It's called diversity of opinion...just a trifle aggravating to people full of themselves...humility and respect for others...is not a problem if you are at peace with yourself. Sorry to be such a bore...but sometimes I feel like a SP fan and I love to "drill baby drill" my boring comments...have some chocolate!
Get past what? question must be specific. g et past debt? no. survive? probably, in some form. it's a financial problem, it has no useful answer. It's very likely that the presently constituted Euro Zone will not exist 5 years from now; so what. This kind of thing happens all the time.
Apparently, possessing an IQ of 145 does not preclude hammering away at the "Save" button like a monkey on crack.
Get past what? question must be specific. g et past debt? no. survive? probably, in some form. it's a financial problem, it has no useful answer. It's very likely that the presently constituted Euro Zone will not exist 5 years from now; so what. This kind of thing happens all the time.
Get past what? question must be specific. g et past debt? no. survive? probably, in some form. it's a financial problem, it has no useful answer. It's very likely that the presently constituted Euro Zone will not exist 5 years from now; so what. This kind of thing happens all the time.
Get past what? question must be specific. g et past debt? no. survive? probably, in some form. it's a financial problem, it has no useful answer. It's very likely that the presently constituted Euro Zone will not exist 5 years from now; so what. This kind of thing happens all the time.
Get past what? question must be specific. g et past debt? no. survive? probably, in some form. it's a financial problem, it has no useful answer. It's very likely that the presently constituted Euro Zone will not exist 5 years from now; so what. This kind of thing happens all the time.
Get past what? question must be specific. g et past debt? no. survive? probably, in some form. it's a financial problem, it has no useful answer. It's very likely that the presently constituted Euro Zone will not exist 5 years from now; so what. This kind of thing happens all the time.
"There's one thing you should know about us Greeks. We're warriors, it's in our DNA."
I didn't know Charlie Sheen was greek!
"We're warriors, it's in our [superior] DNA" - Hitler
Was Hitler greek too?
I have news for you Leo, unless greeks have radiation hardened genetic material, your "warrior DNA" is about to be degraded into shit courtesy of Fukushima radiation. If it makes you feel better, greek DNA won't be alone in its suffering.
Well, they did continue spending on their military, and rightly so. They might indeed survive Europe' islamization over the next fifty years, sort of the same way Israel has survived similary surrounded.
The euro on the other hand, will get deep sixed by the voters of Germany. They teach about weimar over there, about money printing, and they'll not have it.