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Whoopie! We got a Greek Deal!
So we got a Greek deal. That’s great news! (I think, I hope, maybe, we’ll see)
After all the hoopla over the last week where Trichet basically said
that Euro sovereign debt was money good, we find that the same people
have caved and debt relief has been granted.
But I ask the question, “Has debt relief really been granted?” Yes,
there have been some haircuts on some Greek bonds, and yes there is
interest relief involved. But my read of this deal takes Greek Debt to
GDP from an impossible 175% to an (almost) impossible 130%. So I am left
wondering if this is a half loaf; one that does not get the job done.
We shall see.
The Council of the European Union released a long statement on this. I ran it through Wordle. This is what you get:
The full statement(s) can be read at this Zero Hedge link. Here is the one comment that I think is the crux of the matter:
All other euro countries solemnly reaffirm their inflexible determination
to honor fully their own individual sovereign signature and all their
commitments to sustainable fiscal conditions and structural reforms. The
euro area Heads of State or Government fully support this determination
as the credibility of all their sovereign signatures is a
decisive element for ensuring financial stability in the euro area as a
whole.
From this one must conclude that the ECB has put up a big fence around
Greece. They are the only exception in all of Europe that will ever see
debt relief as an option. There will not be a default for Ireland, Spain
and Portugal (and don’t even mention Italy). I say to that:
You wanna bet?
The
CEU statement makes it pretty clear that the Euro folks are going to do
everything they can (including direct intervention in the bond market)
to stop the spread of contagion. I think they will succeed in
maintaining market peace for a few months. But sometime this fall the
issue of default by some Euro members will rise up again. It has to. I think the leaders in Europe are dreaming.
Note: The Greek deal will have an IMF component. A portion
of that will be funded by the good old US of A. There are no details at
this point but I would suggest that the US portion of this will come to
$15-20 billion. In the scheme of things that is not a big deal. But in
the summer of 2011 a bailout of this amount for a country that has
little connection to the US is not going to be such an easy sale. I
think this will happen, but that will be the end of it. The US will not
take part in the next Euro bailout. And yes, the next Euro bailout will happen before year-end.
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Actually in the usual way of counting debt, the face value of the principal, Greece's debt will be increased by this plan.
The swap is only expected to reduce 5.4b of principal, as only half of the 54b they hope will be swapped will be subject to a 20% principal reduction, and the rest will be swapped at par.
But to lure bondholders into this swap, Greece needs to put up 15.66 billion worth of collateral, and it will have to borrow that from the Eurogroup. So the swap actually increases the face value of Greece's debt principal by 10.26b. On the other hand, about 42b of the new stock of principal will be pre-funded with collateral (counting the zero coupons at face value, which they only reach after 30 years). Assuming (rashly) that all goes well, Greece pays interest on that principal for 15-30 years but in a sense won't have to pay back the principal, as it will have an equal value of investments in the form of zero-coupons and escrowed cash.
Calculating the impact on Greece's interest expense is much more complicated. Maybe the best you could do is compare the interest that is being paid on 54b of old GGBs (if you've got the data) to the interest that will be paid on 49.6b of new GGBs (average ~5.25%) plus 15.66b of Eurogroup debt (3.5%). I'm not sure that's an improvement. But Greece didn't have any option to continue paying the old GGBs' rates. This swap actually comes as a compromise between disorderly default and a bigger Eurogroup bailout that would have allowed all private bondholders to cash in outstanding GGBs at face value. Greece's interest costs with this swap deal are obviously more than they would have been with a bigger Eurogroup bailout.
Extend and pretend until the bitter end. And
the end will be very bitter for all of us peons.
My thought on all of this is does this bailout do anything to reduce the Greek structural deficit? Do Greek govt obligations still exceed their revenue generating ability? I think the answers to those question are "no" and "yes" meaning that Greece is still going to be burning through money every single month. You can probably easily calculate based on their burn rate when the next Greece crisis will occur.
The Greeks lied to even get into the Euro. They have a huge problem with tax fraud. Who knows what else they ave lied about or what they are hiding. Now that the date of a transitory haircut has finally arrived, I hope this doesn't turn into a Sampson & Delilah moment.
The only deal the Greek's got was glass shards in the K-Y jelly
Updated last line from an old ditty-
He lined his ass with broken glass and circumcised the banker
Oh well, Greeks are still better at what really counts! ROFLMAO!!
since that commercial was using sterotypes shouldn't the greek have been banging a sheep or are they advertising anal strength condoms
dogbreath, rinse with Smartmouth and lighten up, it's a joke. TGIF...sheesh!!!
i was trying to be funny
For all the noise being generated, one would think that the Europeans had solved the energy problem with a perpetual motion machine. Sadly it won't work as gravity, friction, and time will prove "perpetual" to be still a myth.
Will our elected reps in Washington learn anything from this? Yep, but it will be how to build our own machine rather than the fact that it doesn't work.
Got Physical?
I hope for at least another 5 months before everything blows up, I am not done buying gold and silver yet
The same thing will with the US. A debt deal will be done, a few days of happiness, and "now what". The problems really aren't addressed, they just come back bigger and badder.
Pericles, the original Greek bankruptor-extraordinaire, would be proud all this. A fitting and ironic end when his Acropolis is sold like a condo to the highest bidder. Can't wait to see who is Sparta in all of this.
Who is Sparta in this? How about das Volk?
Agreed, to an extent. Popular uprisings will take down the system, but it seems to me that it will be the organizers or possibly outsiders who, when they're finished using the people, will fill the power vacuum.
Bruce, when do you sleep ?
If I were Portugal, Ireland or even Spain/Italy, I would want a 30% debt relief too, and they will surely try to get it soon before the others grab everything the EFSF can raise, speaking of which...
the same question that Peter Tchir asked yesterday: who would buy EFSF bonds knowing that it will bail out the PIIGS, their banks, the ECB and anything under the sun at rates lower than 3.5% for 15 years or maybe even 30 years? To date, EFSF has only managed to place out 13 b euros. Small details, never mind.
Lemme see. Buying time. Say, over the weekend at best, very best, makes it 3 days for 150 billion (rounding for gubamnit work... BTW a universal mathematical truth) means 50 billion per day, about 2 billion per hour. Pretty expensive "kicking the can to nowhere" time.
Good thing they don't do that here.
$15-20 bil? Let Golden Slacks foot the bill for it - they caused it. Or just take all the billions/ trillions the US has forwarded overseas, including all the wasted $$$ on Iraq, Afghanistan, Libya, et al and pay off every 1st & 2nd mortgage back home.
Hey, the IMF is there to help.
For those who have watched Trichet's and Van Rompuys' et al statements, they are getting notoriously nervous. Expressions like 'we'll do have everything to save the eurozone' are now common place, though unthinkable a year ago.
Yea man. They've probably bought time here. But this won't affect the outcome one bit. That sound we're hearing is the sound of inevitability.
Also, love the IMF pic.
I disagree. It will affect the outcome, as it adds many billions of EUR to the money already thrown out the proverbial window. All these losses eventually come back on the Euro and U.S. taxpayers, either as higher taxes or higher inflation.
Meanwhile, the overleveraged ECB sinks further into insolvency. If their collateral gets marked down 4%, all their capital is gone.
News from someone on the ground in Athens: Many swastikas on the walls plus lots of "Free Gaza" graffiti. Plus lots of crazy talk: "Our Prime Minister is a muslim and has secret deals with the Jews." (Yeah, crazy.)
And again, this is not hearsay - I have it direct from a highly trusted source who is standing in the square and talking to people.
Fuck you
"News from someone on the ground in Athens"
Oh, my, don't we get a live feed or at least a twitter tag?
I'm overtaxed already as it is. If they want to raise taxes once again above the current 55% on my salary, I wonder if it will even be profitable anymore to go to work.
Thats why raising taxes past the breaking point for the heavy lifters will eventually result in less revenue....