Eurozone

In an odd escalation over the Grexit fiasco, where Greece is now expected to provide yet another detailed reform proposal today by midnight at the very latest, it was the one man whose decision will make or break the Eurozone when (if) he decides to impose even more ELA collateral haircuts (or yank ELA entirely) forcing Greece to Grexit by imposing its own currency (since there is no legal mechanism to kick a nation out of the new Berlin Wall) that made some surprisingly candid comments on the fate of the Greek negotiations. According to Reuters, ECB president Mario Draghi voiced "unprecedented doubts about the chances of rescuing Greece from bankruptcy as Greek Prime Minister Alexis Tsipras was due to put forward last-ditch reform proposals on Thursday."

Standing before the European Parliament yesterday, it took Nigel Farage just four minutes to completely destroy every argument supporting the Eurozone.  As Nigel explains in the video below, right from the start, the system was never intended to help the Greek people. Greece entering the euro was great for Goldman Sachs. But terrible for Greeks. It chained the country to a system in which it didn’t belong.

1. Greece is already in default to the IMF
2. Greece and the rest of the Eurozone are further apart than ever
3. Capital controls are notoriously hard to unwind
4. The “no” vote protects the Eurozone’s politicians from looking like they pushed Greece out

"At the moment and in principle we see, as the chancellor said expressly in her press conference in Brussels, no occasion at all to discuss this issue - there is no leverage or basis for that," Martin Jaeger said at a news conference. "That refers to a haircut in the classic sense but I explicitly add we also take that to mean measures that aim to bring about a reduction in the cash value of debt - those are things that you hear in discussions under profiling, restructuring and similar things."

Facing a new “deadline” to submit a viable proposal to EU creditors and keep Greece in the eurozone, Greek PM Alexis Tsipras faced friends and enemies at the European Parliament in Strasbourg on Wednesday, where there was no shortage of fireworks from both sides of the Grexit debate. 

• Greece and China expose limits of 'whatever it takes' (Reuters)
• China no longer has a market: China Stock Sellers Frozen Out of 71% of Market (BBG)
• China’s Market Rescue Makes Matters Worse as Prices Lose Meaning (BBG)
• China Stocks Plunge as State Support Fails to Revive Confidence (BBG)
• China Market Rout Spreads From Stocks to Price of Pig Food (BBG)
• China’s State-Owned Firms Ordered Not to Cut Share Holdings (BBG)
• Greece Requests Three-Year Bailout in First Step Toward Meeting Creditors’ Demand (WSJ)
• Greece Faces Euro Exit Unless Demands Accepted by Sunday (BBG)

Greece formally requested a three-year bailout from the eurozone’s rescue fund Wednesday and pledged to start implementing some of the overhauls demanded by creditors by early next week. Crucially for Greece’s creditors, the letter says the government would start implementing some measures, including on taxation and pensions, by the beginning of next week, though it doesn’t go into details. The letter is a first step toward fulfilling a demand by international creditors, who have given Athens until Sunday to come up with tougher measures they would impose in return for desperately needed financing that could keep the country from bankruptcy and even worse economic turmoil. 

Today's market battle will be between those (central banks) "hoping" that a Greek deal over the weekend is finally imminent (which on one hand looks possible after a major backpeddling by Tsipras - who may never have wanted to win the Greferendum in the first place - yesterday in Brussels and today during his speech in the Euro Parliament, but on the other will be a nearly impossible sell to Greece as any deal terms will be far harsher than the deal offered by the Troika 2 weeks ago and will have no debt reduction), and those who finally noticed that the Chinese central planners have effectively lost control.

Call it "game theory" gone horribly "chaos theory."

The Greek prime minister who decisively and unexpectedly pushed for a referendum on the last weekend of June, "never expected to win Sunday's referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control." He got just that, and in a landslide vote at that even though "he called the snap vote with the expectation - and intention - of losing it."

In the end, finance—at any level—has to be about rules and numbers, or it becomes about nonsense. Break enough of your own rules, and your money turns to garbage, because in a world where money is debt and debt is garbage, money is garbage. But there is a proven method for solving this problem and moving on: it's called national bankruptcy. Greece is bankrupt; if its resolution brings on the bankruptcy of Spain, Italy and others, and if that in turn bankrupts the entire Eurozone, then that's exactly what must happen. But something else might happen instead.

The President and German Chancellor Angela Merkel spoke by phone this morning about Greece. The leaders agreed it is in everyone's interest to reach a durable agreement that will allow Greece to resume reforms, return to growth, and achieve debt sustainability within the Eurozone. The leaders noted that their economic teams are monitoring the situation in Greece and remain in close contact.

Despite endless assurances that the Greek debt crisis is contained, the reality is that the ragin' contagion of debt crises will spread not just to other deeply indebted nations but to the mercantilist economies that depend on selling goods to borrowers. Strip out the borrowing, and you strip out most of the customers for German, Dutch and Chinese goods.

In Spain, only Vladmir Putin is more disapproved of than Angela Merkel. Such is the level of polarization that Germany's chancellor has created in Europe that, as WSJ reports, even domestically she is being deriled for saddling Greeks with "soup kicthens upon soup kitchens." As Marcel Fratzscher, head of the German Institute for Economic Research, a leading Berlin think tank notes, "Germany has, at the end of the day, helped determine most of the European decisions of the last five years," and therefore, "what is happening now is a defeat for Germany, especially, far more than for any other country."

"We Greeks have voted 'No' to slavery -- but 'Yes' to our chains... What's simply whack-o is that, while voting "No" to austerity, many Greeks wish to remain shackled to the euro, the very cause of our miseries."

Among all the mindless blather served up by the talking heads of bubblevision is the recurrent claim that “its all priced-in”. That is, there is no danger of a serious market correction because anything which might imply trouble ahead—-such as weak domestic growth, stalling world trade or Grexit——is already embodied in stock market prices. Yep, those soaring averages are already fully risk-adjusted! Nothing to see here, it will be argued. Today’s plunge is just another opportunity for those who get it to “buy-the-dip”. And they might well be right in the very short-run. But this time the outbreak of volatility is different. This time the dip buyers will be carried out on their shields.