Unloaded Weapon Part ???: The Curious Case Of The Endless Non-Bailout Bailout

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On a sunny weekend in September 2008, a bunch of CDS traders were summoned at noon with the advance knowledge that Lehman was filing that midnight and to trade out of Lehman counterparties positions asap. On a sunny weekend in April 2010, a bunch of fat European bureaucrats were summoned to a videoconference to bail out Greece (for the 4th time) and achieved absolutely nothing new (for the 5th time). The latest episode in the Greek tragicomedy adds exactly no information to what was expected to be a firm bailout package: hold on a second but we knew the last weekend of March that should Greece demand help it would be bailed out by the ECB - so just what is new here? Ahh, anything to create the illusion of forward progress. In continuing to munch the non-austerity cake and have it too, the package is not really operational until Greece demands it. Which they won't until creditors put them in involuntary bankruptcy after coupon non-payment. Presumably the final rate agreed upon is 5% for a three year loan: how some bureaucratic soothing words can hope to push the entire Greek curve down by over 200 bps will be very fun to watch. Then again, as the curve will likely continue to be inverted, we dont expect much normalization for the 10 Year, as the country will most certainly be bankrupt by 2020. Lastly, to show just how serious the ECB is this time, any coordination with the IMF will not begin until tomorrow. We sure feel bad for all those traders who are now told by their superiors to buy the Greek €1.2 billion in 6 and 12 month bills on Tuesday, as any hope of return of capital now rests with whatever new insanity Brussels can cook up next. Paulson's gun is now firmly in control of the Greek/ECB, and is now thoroughly empty after repeated own-foot shootings. And while we are on the topic of IMF-assisted suicide, the next full day of Greek strikes is now set for April 22, when Greek civil servants will walk of the job for 24 hours according to an ADEDY union official.

From Reuters:

BRUSSELS/ATHENS, April 11 (Reuters) - Euro zone finance ministers unanimously approved a detailed 30 billion euro emergency aid mechanism for debt-plagued Greece on Sunday but stressed it had not requested that the plan be activated now.

In a rare weekend telephone conference, ministers from the 16 nations that share the single European currency backed [or is that baked] a plan for Athens to borrow from euro zone governments and the IMF at well below current market rates if market funding dries up.

Greece would receive 30 billion euros in the first year from all euro zone countries in bilateral loans coordinated by the European Commission and paid via the European Central Bank, the head of the Eurogroup of finance ministers said.

"If the mechanism had to be activated, it would not be a violation of the no-bailout clause (in the European Union treaty) since the loans are repayable and contain no element of subsidy," Eurogroup chairman Jean-Claude Juncker told a news conference in Brussels after the meeting.

European Economic and Monetary Affairs Commissioner Olli Rehn said the euro zone loans would carry an interest rate of about 5 percent -- well below current market rates of over 7 percent.

The size of the International Monetary Fund's contribution to any package was not disclosed but it would come on top of the euro zone amount. Euro zone countries would pay proportionately to their share in the ECB's capital. Talks on coordination with the IMF will begin on Monday, Rehn said.

The agreement was urgently awaited because Athens is due to auction short-term debt on Tuesday after investors last week sent Greek borrowing costs spiralling due to fears of a possible default and doubts over the EU safety net.

Greek Prime Minister George Papandreou made clear in a newspaper interview that detailing the rescue plan was a last ditch effort to deter speculation against his country.

"The question remains whether this mechanism will convince markets just like a gun on the table. If it does not convince them, it is a mechanism that it is there to be used," he told the Sunday edition of To Vima.

It was the most explicit mention a Greek leader has made of the possibility of requesting aid. Previously, Papandreou and Finance Minister George Papaconstantinou have insisted Greece is not asking and will not ask for assistance.
"The country's aim is to continue to borrow smoothly from the markets under better terms than the current ones," the finance minister told Sunday's Realnews newspaper.


Scepticism over Greece's ability to manage its 300 billion euro ($401.2 billion) debt pile, more than its 240 billion euro annual economic output, grew last week when investors dumped Greek stocks and bonds and ratings agency Fitch downgraded Athens by two notches.

Fitch dropped Greece's credit rating to BBB-, the lowest investment grade just above junk, saying a deepening recession and rising debt service costs would make it even harder for Athens to meet its budget deficit reduction target.

The government has imposed tough austerity measures to meet a pledge to cut the public deficit by four percentage points of gross domestic product to 8.7 percent this year.

Juncker said data provided by Greece showed the fiscal consolidation programme were encouraging and showed Athens was on track to reach this year's target.

A euro zone finance ministry official said Sunday's teleconference was not about deciding to give Greece aid, but about technical preparations in case a rescue was needed.

"The fire brigade is filling up its water tanks, and is ready to act, but it won't be driving out of the station until there is a call for help. That call for help hasn't come yet," the official said.

Strong public opposition to any bailout for Greece in Germany, Europe's biggest economy and main paymaster, has fuelled market doubts about the availability of any resue, especially since the plan leaves Berlin a veto.

Germany, the Netherlands and Austria had argued that any emergency bilateral loans to Greece should be at current market rates, which rose above 7 percent last week, to avoid moral hazard by rewarding profligate countries.

However, euro zone officials worked out a formula on Friday that would provide 3-year loans for about 5 percent, based on the IMF's pricing formula with some adjustments, Rehn said.

The euro, which has been dragged down by concerns over Greece and possible contagion with other weak Mediterranean euro zone economies, rebounded slightly on news of Friday's technical agreement among deputy finance ministers and central bankers.

The risk premium that investors charge to hold Greek debt rather than benchmark 10-year German bonds narrowed to just over 400 basis points after hitting a record 454 on Thursday.

However, any durable reduction in the spread will depend on the credibility of the EU rescue plan and markets' assessment of how likely it is to be invoked.

Greece needs to borrow about 11 billion euros by the end of May to refinance maturing debt and interest charges. Its overall 2010 borrowing requirement is 53 billion euros.

And from Bloomberg:

‘Loaded Gun’

A “loaded gun” to ward off speculators is now “on the table,” Greek Prime Minister George Papandreou told To Vima newspaper today.

What would trigger the unprecedented European lending was left unanswered in today’s teleconference of euro-region officials, which included European Central Bank President Jean- Claude Trichet. Also left open was how much the Washington-based IMF would chip in for 2010, and how much Greece might need in 2011.

“We cannot speak on behalf of the IMF, but we know that they are ready to cooperate and contribute with a substantial amount,” European Union Economic and Monetary Commissioner Olli Rehn said. “It is really up to the IMF to speak for itself. We have to respect their independence.”

Rehn said that the IMF would likely put up about a third of any aid plan, indicating another 15 billion euros in possible IMF funding.

European pledges in February and March to provide aid in an emergency failed to prevent Greek 10-year bond yields from soaring to 7.51 percent on April 8, according to Bloomberg generic prices, amid concern that Papandreou’s government will be swamped by its bills.

The jump in Greek yields to the highest since December 1998 helped overcome resistance to a loan package in Germany, which as Europe’s biggest economy would contribute almost a third of the loans, the largest single share.

In the meantime, the futures market will, as if by magic, drift with no downticks to 1,200 by midnight.

The only question we have is, if all those people who participated in the Madoff ponzi were fully aware it was a ponzi (just like RenTec... uh, realized, not that RenTec is a ponzi, that would be presposterous), would they still run hand over fist to throw away their money and buy, buy, buy?