Run your on Greek default scenario right here. An online sovereign default calculator, of sorts...
Update: And finally for some reality from Dutch fin min De Jager: "We Cannot Approve Second Programme For Greece Until Greece Has Met All Its Obligation"... And now we know who Germany's "+1" will be when Greece becomes Southern Goldman Bavaria: "De Jager Says He’s in Favor of a Permanent Troika in Athens"
We would love to share some witty comments and jovial banter on this latest set of soundbites by Europe's effete bureaucrati on occasion of the latest and greatest Greek bailout, however having already done so on at least 10 times in the past, we have run out of things to say in this particular context and frankly we are bored with this topic. Which is precisely the Eurogroup's intention. Presenting "soundbites du jour, Greece edition N+1".
Let's put things back into perspective. Europe is lending money to Greece, which according to latest rumors will at least for the time being be in the form of the dreaded Escrow Account, which in turn means that the only recipients of bailout cash will be Greek creditors, whose claims will be senior to that of the government. In other words, it will be up to Greece, and specifically its own tax "collectors" to provide the actual funding needed to run the country as bailout or not bailout, Greek mandatory (forget discretionary) expenditures will not see one penny from Europe. As a reminder, the country is already €1 billion behind schedule in revenue collections which are down 7% Y/Y compared to an expectation of 9% rise. As a further reminder, the one defining characteristic of Greek tax collectors is that they are prone to striking. Virtually all the time. And that is assuming they even have the ink to print the required tax forms. Which last year they did not. So under what realistic assumptions are Greek tax collectors laboring in the current tax year? Why, nothing short of them having to be not 100%, but 200% more efficient. From Kathimerini: "Greece’s tax collectors were told over the weekend that they would have to do a much better job this year at gathering overdue taxes. How much better? Almost 200 percent." And this, unfortunately, is where the Greek bailout comes to a screeching halt, because while it is no secret that Greek "bailouts" do nothing for the country, but merely enforce ever more stringent austerity to mask the fact that all the cash is simply going from one banker pocket to another, it is the pandemic corruption embedded in generations of behavior that is at the root of all Greek evil. And there is no eradicating that. Now tomorrow, and not by 2020.
For several weeks now we have been warning that while the conventional wisdom is that Europe will never let Greece slide into default, Germany has been quietly preparing for just that. This culminated on Friday when the schism between Merkel, who is of the persuasion that Greece should remain in the Eurozone, and her Finmin, Wolfgang "Dr. Strangle Schauble" Schauble, who isn't, made Goldman Sachs itself observe that there is: "Growing dissent between Chancellor Merkel and finance minister Schäuble regarding Greece." We now learn, courtesy of the Telegraph's Bruno Waterfield, that Germany is far deeper in Greece insolvency preparations than conventional wisdom thought possible (if not Zero Hedge, where we have been actively warning for over two weeks that Germany is perfectly eager and ready to roll the dice on a Greek default). Yet it is not only Germany that is getting ready for the inevitable. So is Greece.
Open Europe has published a briefing note outlining the ten questions and issues that still need to be resolved in the coming weeks in order for Greece to avoid a full and disorderly default on March 20. The briefing argues that, realistically, only a few of these issues are likely to be fully resolved before the deadline meaning that Greece’s future in the euro will come down to one question: whether Germany and other Triple A countries will deem this to be enough political cover to approve the second Greek bailout package. In particular, the briefing argues that recent analyses of Greece’s woes have underplayed the importance of the problems posed by the large amount of funding which needs to be released to ensure the voluntary Greek restructuring can work – almost €94bn – as well as the massive time constraints presented by issues such as getting parliamentary approval for the bailout deal in Germany and Finland. While the eurozone also continues to ignore or side-line questions over the whether a 120% debt-to-GDP ratio in 2020 would be sustainable and if, given the recent riots, Greece has come close to the social and political level of austerity which it can credibly enforce.
One thing is for certain, the litigation is beginning to shift from minor players to major players at the core of the Financial Crisis. Investors take note, this is a major shift and needs to be monitored as it will have major implications for market dynamics going forward.
Yesterday, when the rumor (because it has not been confirmed by the ECB, and most certainly not by the Bundesbank) that the ECB would distribute its "gains" (i.e., personally fund the difference between cost basis and par on Greek bonds - incidentally, a development which BUBA president Jens Weidmann has said would only happen over his dead body) we urged readers "to ignore the constant barrage of meaningless noise and flashing red headlines" as apparently nobody who trades the EURUSD has any clue what subordination means or has ever participated in any debt for equity transaction. Specifically, with regard to the idiotic EURUSD reaction we said: "Today [yesterday] is a great case in point of a tangential detour which does nothing to change the reality that Germany no longer wants Greece in the Eurozone (remember, oh, yesterday), and that the ECB is merely playing possum with PSI creditors who will block the deal with even greater vigor than before (anyone recall the FT story about the PSI deal being on the verge of collapse not due to the ECB but due to private creditors?) as the ECB's even bigger subordination will simply make the amount of hold outs even greater." We concluded by assuming that "algos will take the required 12-48 hours to figure out what just happened today." Well, the algos are still lost in idiot vacuum tube world, but at least the banks are starting to comprehend what the 'deal' really means and that the Nash Equilibrium is even worse than before. From Bloomberg: "A plan being considered by the European Central Bank to shield its Greek bond holdings from a restructuring may hurt the euro because it implies senior status for the ECB over other investors, UBS AG said. “There are at least two euro-negative dimensions, which will likely lead to euro weakness” as a result of the plan, Chris Walker, a foreign-exchange strategist at UBS in London, wrote in a research report today." Once again, we urge all FX traders to read our primer on subordination, and why and how it will define trading this year, as reactions such as the one yesterday confirm that the market is not only broken but also very stupid. Which is just as those in charge like it.
While next to impossible, now may be a good time to ignore the constant barrage of meaningless noise and flashing red headlines, which not only are contradictory but prove that Europe is literally making it all up as it goes along. Today is a great case in point of a tangential detour which does nothing to change the reality that Germany no longer wants Greece in the Eurozone (remember, oh, yesterday), and that the ECB is merely playing possum with PSI creditors who will block the deal with even greater vigor than before (anyone recall the FT story about the PSI deal being on the verge of collapse not due to the ECB but due to private creditors?) as the ECB's even bigger subordination will simply make the amount of hold outs even greater. So while algos take the required 12-48 hours to figure out what just happened today, here is SocGen's Suki Mann stepping back from the endless daily din, and summarizing what is really happening in Europe.
Today, people who believe that gold is money think that one should hoard gold. They seek to take possession personally. Or when they have it stored professionally, they look for a private vault outside the banking system where they can (hopefully) trust their warehouse receipt. And why shouldn’t they avoid the banking system? Its corruption was always inevitable. The advent of the central banks before World War I ensured it. The theft (in the US) of the gold of the people in 1933 cemented it, along with the dollar devaluation. The treaty at Bretton Woods in 1944, in which the world agreed to treat the US dollar as if it were gold nailed it in place. The default on the US government’s gold obligations in 1971 by President Nixon set it in stone. Today, we have a corrupt central bank that centrally plans money, credit, discount, and interest. The regime of irredeemable paper money is going to collapse. Anyone who understands it should want to get out of it, and not be a creditor to insolvent banks. This is a rational personal response to an irrational system. But it is not necessarily a vision for how the world ought to be run, or how a banking system should be designed. Today, it is necessary to hunker down, trust no one, hide one’s gold, and take no unavoidable or unnecessary risk. Today, one is concerned with one’s stocks of gold. One has what one has, one tries to get a little more while one can, and then one hopes that after “it” happens, one will have enough.
What is better than a one-front European war on insolvency? Why two-fronts of course. But not before many "soothing" words are uttered (no really). From Reuters: "Portugal's international lenders arrived in Lisbon on Wednesday to review the country's bailout, with soothing words of support likely to dominate as Europe gropes for success stories to counteract its interminable Greek headache. As the euro zone's second weakest link, Portugal's ability to ride out its debt crisis will be key to Europe's claim that Greece is a unique case. Despite a groundswell of concerns that Portugal - like Greece - may eventually have to restructure its aid programme, the third inspection of Lisbon's economic performance in the context of its ongoing 78-billion-euro rescue should make that contention clear. "The review will be all about peace and harmony," said Filipe Garcia, head of Informacao de Mercados Financeiros consultants. "The important thing for Europe is to isolate Portugal from Greece, to put it out of Greece's way in case of a default or even an exit from the euro." That makes sense - after all even Venizelos just told Greece that the country is not Italy. And if that fails, the Don of bailouts, Dr Strangeschauble will just give the country will blessing to use a few billion in cash. Oh but wait. It can't. Because as as we pointed out in late January, and as the market has so conveniently chosen to forget, Portugal, unlike Greece, has simple, clean and efficient negative pledge language in its non-local law bonds. Which means "no can do" to any additional bailouts under its current capitalization. Which may very well mean that Portugal is stuck with its existing balance sheet unless the country succeeds in doing an exchange offer which takes out all UK- and other strong-protection bonds. All of them. And as Greece has shown, that is just not going to happen.
- Europe ushers in the recession: Euro-Area Economy Contracts for the First Time Since 2009 (Bloomberg)
- Greek conservative takes bailout pledge to the wire (Reuters)
- China Pledges to Invest in Europe Bailouts (Bloomberg) - as noted last night, the half life of this nonsense has come and gone
- Japan's Central Bank Joins Peers in Opening the Taps (WSJ)
- EU Moves on Greek Debt Swap (EU)
- EU Divisions Threaten Aid For Greece (FT)
- Athens Woman facing sacking threatening suicide (Athens News)
- King Says Euro Area Poses Biggest Risk to UK’s Slow Recovery (Bloomberg)
- Sarkozy to Seek Second Term, Banking on Debt Crisis to Boost Bid (Bloomberg)
A few weeks ago, some of the more naive media elements reported that Greece has "all the cards" in its negotiations with private creditors, a topic we had the pleasure of deconstructing in its entirety to its constituent flaws? Well, a day ahead of the February 15 Eurozone meeting at which Greece's fate is finally supposed to be settled, things appear to be quite amiss. As a reminder, a critical part of the Greek debt deal is the private sector's agreement to roll over existing holdings into new bonds, which as we learned may now see the 15 cent per bond sweetener into new EFSF debt reduced. According to the Handelsblatt, that is now off the table. Dow Jones summarizes: "Some central bankers expect that Greece will fail to enlist enough private investors in a voluntary debt restructuring to avoid a technical default, a German newspaper reported Tuesday. Greece is likely to make its case for a voluntary debt swap after a meeting of euro group finance ministers Wednesday, the Handelsblatt newspaper says. The Greek government is seeking to lower its burden by EUR100 billion. Handelsblatt cites unnamed central bank sources as saying the country will fail to achieve that goal, leaving the government little choice but to make the write-down mandatory for investors holding out. Requiring investors to take a loss would prompt credit rating agencies to declare a debt default for Greece, an event with unforeseeable consequences for financial markets. The report doesn't specify whether its sources are with the European Central Bank or with the German Bundesbank. Neither bank would comment early Tuesday." Which of course is not news: after all even the rating agencies have long warned a Greek default is now inevitable, and a CDS trigger will follow. The only thing that there is massive confusion over is whether and how this event will impact everyone else, and whether it will lead to an explusion of Greece from the Eurozone. Optimism is that it is all priced in. So was Lehman.
Moody's Downgrades Italy, Spain, Portugal And Others; Puts UK, France On Outlook Negative - Full StatementSubmitted by Tyler Durden on 02/13/2012 18:00 -0500
You know there is a reason why Europe just came crawling with an advance handout looking for US assistance: Moody's just went apeshit on Europe.
- Austria: outlook on Aaa rating changed to negative
- France: outlook on Aaa rating changed to negative
- Italy: downgraded to A3 from A2, negative outlook
- Malta: downgraded to A3 from A2, negative outlook
- Portugal: downgraded to Ba3 from Ba2, negative outlook
- Slovakia: downgraded to A2 from A1, negative outlook
- Slovenia: downgraded to A2 from A1, negative outlook
- Spain: downgraded to A3 from A1, negative outlook
- United Kingdom: outlook on Aaa rating changed to negative
In other news, we wouldn't want to be the company that insured Moody's Milan offices.
- Greek Parliament Backs Austerity as Rioters Burn Buildings (Bloomberg)
- China CIC Wary of EU Government Bond Investments (Reuters)
- Spain Unions Decry New Labor Rules (WSJ)
- China Tells Banks to Roll Over Loans (FT)
- We're Not Greece: Italian Prime Minister Monti (CNBC)
- Bernanke’s Labor Pessimism at Odds With U.S. Growth (Bloomberg)
- Obama Budget Seeks Funding for Trade Unit (Bloomberg)
- Obama's Election-Year Budget to Target Rich (Reuters)
- China May Need to Fine-Tune Policy This Quarter, Wen Says (Bloomberg)
- China’s Xi Seeks Second Front for U.S. Ties in Return to Iowa (Bloomberg)
- Why Greece and Portugal Ought to go Bankrupt (FT)