Eurozone

The complacency of the markets is amazing given the risks at hand. I don't think I'm that smart, so is it that so many others are that stupid? It can't be, can it?

Ladies and gentlemen: we bring you.... 9 our of 9. That would be the number of times (at least since we have started counting) that Goldman FX maven Thomas Stolper has capitulated on his calls. IN A ROW.

And scene.

• EURO ZONE FINANCE OFFICIALS CONSIDERING PROPOSAL TO DELAY ALL OR PART OF GREEK BAILOUT YET STILL AVOID DEFAULT-EU SOURCES

Yes: Europe suggests it may be best for Greece to be partially pregnant... er, in default. But all will be "controlled" - promise. We were a little generous in our estimate for the halflife of the Chinese bail out rumor. Either way, EURUSD plunging down to under 1.3070 on the news.

• 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)

Yes, another indirect Greek headline. Oh well.

• EUROZONE FINANCE MINISTERS UNLIKELY TO MEET IN BRUSSELS ON WEDS AS NOT ALL PAPERWORK ON GREECE IS READY - EU OFFICIALS - RTRS
• EUROZONE FINANCE MINISTERS EXPECTED TO HOLD A CONFERENCE CALL ON SECOND PACKAGE FORE GREECE INSTEAD

At least the dog and the homework were not invoked. yet. March 20 is just 35 days away. After that, it is mercifully over.

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.

• BOJ Adds to Monetary Easing After Contraction (Bloomberg)
• EU to punish Spain for deficits, inaction (Reuters)
• Obama, China's Xi to tread cautiously in White House talks (Reuters)
• Global suicide 2020: We can’t feed 10 billion (MarketWatch)
• Greece rushes to meet lender demands (Reuters)
• Obama Budget Sets Up Election-Year Tax Fight (Reuters)
• Foreign Outcry Over ‘Volcker Rule’ Plans (FT)
• Moody’s Shifts Outlook for UK and France (FT)
• France to Push On With Trading Tax (FT)

Europe's now painfully transparent policy of demanding that Greece decide to default on its own is becoming so glaringly obvious, we truly fear for the intellectual capacity of everyone who ramps the EURUSD on any incremental "europe is saved" rumor. As a reminder, yesterday we said, in parallel with the Greek irrelevant MoU vote: "The only real questions are i) what the Greek population may do in response to this latest selling out of a population "led" by an unelected banker, which if history is any precedent, the answer is not much, and ii) how Germany will subvert this latest event, and put the bail [sic] back in Greece's court once again." We documented on i) earlier today - a couple of burned down buildings, a few vandalized store fronts, lots of tear gas and that's about it, as people still either don't believe or can't grasp the seriousness of the situation. As for ii) we now get the first indication that not all may be well on Wednesday. From the FT: "European officials rushed to finalise details of a €130bn Greek bail-out on Monday amid signs Germany and its eurozone allies may not be prepared to approve the deal at a finance minsters’ meeting on Wednesday, despite Athens backing new austerity measures." And so the bail [sic] is once again back in Greece's court, where however since the last such occurrence, the parliament has 43 MPs less. Quite soon, the only person left in "charge" of the country will be the ECB apparatchick and unelected banker Lucas Papademos.

Everything you always wanted to know about LTRO but were afraid to read.

Tonight's protest in Athens has all the makings of the vintage ones from May of 2010, and the nigh is still young. Here are some updates:

• FTW: Public order minister resigns in Greece as fires burn - BBC
  
• Rioting spreads across central Athens, at least 5 buildings set ablaze - AP 
• 2:02PM EST: FIRES ARE BURNING SEVERAL SMALL BUSINESSES AROUND ATHENS AS PROTESTERS CLASH WITH POLICE NEAR GREEK PARLIAMENT
• 1:52 PM EST: POLICE ARE CLEARING PROTESTERS FROM OUT IN FRONT OF GREEK PARLIAMENT BUILDING
• 1:50 PM EST: ATMS ARE REPORTEDLY EMPTY AROUND ATHENS... STILL UNCONFIRMED WORKING TO CONFIRM THIS 
• 1:48 PM EST: LARGE FIRES ARE REPORTED AROUND ATHENS... INCLUDING A BRANCH OF EUROBANK AND STARBUCKS
• Skai TV reports that police have run out of tear gas & have asked for more supplies to be brought

As a reminder, the final vote is not until midnight.

"The European Union suffers under Germany” ruffled some feathers, but Greek reform rebellion gives Angela Merkel and others what they’ve been looking for: plausible deniability.

S&P just downgraded 34 of the 37 Italian banks it covers. Below is the full statement. And so get get one second closer to midnight for Europe's AIG equivalent: A&G. As for S&P, this is the funniest bit: "We classify the Italian government as "supportive" toward its banking sector. We recognize the government's record of providing support to the banking system in times of stress." Even rating agencies now have to rely on sovereign risk transfer as the only upside case to their reports. Oh, and who just went balls to the wall Italian stocks? Why the oldest (no pun intended) contrarian indicator in the book - none other than permawrong Notorious (Barton) B.I.G.G.S.

Heading into the North American open, EU equity indices are trading lower following reports that Eurozone Finance Ministers have dismissed as incomplete a budget presented to them by the Greek party leaders. In addition to that, EU lawmakers have warned Greece of more intensive involvement in the Greek economy to improve tax collection and accelerate the sale of state-owned assets. The Greek Finance Minister Venizelos said that Greece must make a “final, strategic” decision Greek membership in the Eurozone over the next six days as it decides on new austerity and reform measures or faces leaving the single currency. However, according to sources, German finance minister told MPs, Greek reform plans would bring debt to 136% of GDP by 2020, instead of targeted 120%. So it remains to be seen as to whether Greece will be able to meet the looming redemptions in March. Of note, analysts at Fitch said that the ongoing Greece talks stating that the country must secure an agreement to cut its debt burden in the next few days to prevent a “disorderly” default.

• Eurozone dismisses Greek budget deal (FT)
• Germany Says Greece Missing Debt Targets in Aid Rebuff (Bloomberg)
• Germans concerned over Draghi liquidity offer (FT)
• Azumi Says Japan Won’t Be Shy About Unilateral Intervention (Bloomberg)
• Schaeuble Signals Germany Is Flexible on Revising Terms of Portuguese Aid (Bloomberg) - food euphemism for "next on the bailout wagon"
• Venizelos Tells Greek Lawmakers to Back Budget Cuts or Risk Exiting Euro (Bloomberg)
• Putin May Dissolve Ruling Party After Vote (Bloomberg)
• HK Bubble pops? Hong Kong Sells Tuen Mun Site to Kerry for HK$2.7 Billion, Government Says (Bloomberg)
• Gross Buys Treasuries as Buffett Says Bonds Are ‘Dangerous’ (Bloomberg)

Even as the ECB's very own Mario Draghi is now peddling Greek deal rumors, which are essentially a reaffirmation that the country will "pledge" to return to GDP growth in 2013, we are already seeing real, not pledged, or promised, consequences of this deal, whether real or not (ignoring that Venizelos just said that it would actually take up to 15 days to finalize it, something which means the Greek exchange offer is DOA) namely that the crippling economic collapse discussed extensively on these pages is about to get far worse. AP reports: "Angry union leaders announced a 48-hour general strike for Friday and Saturday." “We are moving to a social uprising," said ADEDY Secretary Genera Iliopoulos." Surely this is the fastest shortcut for Greece to meet or beat expectations of halting the 10% drop in its GDP and convert that number to positive. One can only hope that makers of bulletproof vests can compensate the economic collapse as every other part of the economy shuts down.