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Here It Comes - Bunds Tumble Following News Sarkozy, Merkel To "Make Announcement" On Greece Today

Well, the China rumor came and went... So it's time for more "Magic From a 'Mergency Merkozy Meeting." From Reuters:


Bottom line: either they file Greece, or they don't, and the vigilantes realize that "emergency" meetings become not monthly (remember Zero Hedge's question how long until the next Merkozy "date" following the last one?), not weekly, but daily, and German and French CDS soar to record highs... Which will likely happen today.

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The Summer Vacation Is Over - As Papandreou Briefs Greece On Its Sorry State, The Riot Police Returns

Just as Greece's G-Pap, who has proven he has more political lives than a cat, is about to speak at the Thessaloniki trade fair with an update on the economy (which is now contracting at more than 5% compared to the -3.8% forecast in May), the country reminds us that summer vacation is over, and that millions of Greeks have returned from their month long vacations only to find that they still are not getting the socialist benefits they thought may, just may, sneak their way back into their paychecks and early retirement plans. To wit, as AP reports, "Riot police fired tear gas Saturday to disperse anti-austerity protesters armed with flare guns, stones and sticks as clashes broke out in Greece's second-largest city. From taxi drivers to sports fans, thousands of angry citizens were protesting in the northern port of Thessaloniki before the prime minister's annual speech on the economy. The protests came in waves Saturday. Several thousand taxi drivers angry over new licensing reforms chanted anti-government slogans as they marched, many throwing plastic water bottles at riot police guarding the trade fair where Papandreou was to speak later. An estimated 1,500 students and anarchists followed on their heels, while other crowds gathered for separate protests by the barely-solvent country's two biggest labor unions. Even fans of Thessaloniki's soccer club Iraklis turned out to protest." Of course, now that even Italy, after one aborted attempt to paint over the issue, is forced to impose some austerity, Europe has a long, long autumn and winter of protesting to look forward to, which coupled with the logical impact on GDP courtesy of everyone's complete lack of interest in working any more (think of the horror at retiring at 65), means that all European economies will soon grind to a halt... Just as has been predited on these pages over a year ago.

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As Greece Denies, Germany Begins Greek Default Preparations

Literally seconds after the Greek finance ministry announce that any rumors of a Greek default over the weekend are absolute rubbish (we wonder who would admit such rumors?), we get the following from Bloomberg: "Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said. The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said. The existence of a “Plan B” underscores German concerns that Greece’s failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress." Looks like at least one very "naive" government is not buying the latest batch of lies from Greece.

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D-Day For Greece And Another Eurocalypse Report From Goldman Sends Europe Tumbling Once Again

And so once again Greece, and Europe in general, reminds the markets it exists, and in doing so sends risk lower across the board. The most specific reason cited why the Euro is in multi-month freefall, and French and Italian banks are tumbling is that today is D-Day for the Greek bondholder debt swap, which expires later in the day. As a reminder, as part of the Greek Bailout #2, about 90% of holders of Greek bonds are expected to tender their bonds in order for the "bailout" to be successful. There is one problem: this is not happening, and now the backtracking begins. Adding fuel to the fire is another wolf in sheep's clothing report from Goldman which while saying the same banks will be ok at the end of the day, implies that many others will be locked out from capital markets, and will force many of the smaller banks to liquidate: to wit - "If the governments choose to impose haircuts on banks’ sovereign debt holdings, capital will need to be raised. We see banks that trade at reasonable valuations being able to do so in the market. However, those most likely to be effected (GIIPS domiciled) would need to source capital in the public sector; their low valuations would likely make this prohibitively expensive for existing shareholders." Read - bankruptcy... Not the word Europe needs to hear today.

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Did Greece Crush Keynesianism?

In an excellent treatise on sovereign subtleties, Morgan Stanley's Arnaud Mares (the same analyst who nailed the Greek situation long before most others) once again lays out the increasingly bifurcated path that a broken European 'union' may and must take. Most interesting, and highly prescient in our view, is his consideration that the 'private sector involvement' in the restructuring of Greek debt was not only a major policy error but opens the door for the peasantry to finally comprehend that when sovereign debt is not 'risk-free' then fiscal (and monetary) policy can become pro-cyclical. With the entire Keynesian dogma resting on this very tenet, we think it well worth a read and as he writes: "Pandora’s Box has been opened. Only fiscal integration accompanied by centralized financing of governments can bring about full stabilization of the market in Europe, in our view. The alternative could eventually be a resumption of the run on governments and a wave of public and private defaults." Bottom line, in attempting to do things half-assed, Europe may have just destroyed the entire credibility of the one primary economic theory driving global "growth" (or stated better, borrowing from the future) since the beginning of the 20th century.

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Greece Itself Now Openly Ridicules Europe's Lies Of Greek "Stability"

Compare these two statements: first from Reuters- "Greece's debt has run out of control and government policies are failing to restore finances, an independent parliamentary committee of experts wrote in a report released on Wednesday." And second, from Bloomberg: "Greece’s debt is on a “durable declining path” and new projections will show that the second rescue program reduces net  liabilities, European Union Economic and Monetary Commissioner Olli Rehn said." Sorry Europe: your credibility, whatever was left of it, just ran out. When the indirect object of your bail out effort (the direct one being naturally your central bank and your various local banking oligarchy of course) says in your face that you are full of excrement, it is time to put a fork in it.

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Greece Ups the TBTF Ante With Merger Of Alpha Bank And Eurobank, Creates Largest (Jointly Insolvent) Bank In Southeast Europe

As of minutes ago, the speculation that Greek Alpha Bank and Eurobank are merging, in the process creating the largest Greek bank, and first TBTF candidate, has been confirmed, leading to a 30% jump in the stock prices of both Alpha and Eurobank. Not only that, but as AP reports, "the news triggered a Greek share rally, with the benchmark General Index on the Athens bourse gaining more than nine percent in early trading. On Friday, it had hit its lowest in nearly 15 years due to concerns over the future of the country's latest rescue package. The banking sector was up nearly 20 percent, while shares in National Bank of Greece, the country's largest lender, were up 29 percent." This move, which is nothing more than an attempt to pool deposit bases at these two very troubled institutions and thus prevent a bank run, needed a back stop to be credible: sure enough here comes the Petrodollar patsy: "Qatar Investment Authority (QIA), which is already an Alpha shareholder, is expected to take a bigger stake in the new bank. QIA holds 5% of Alpha and is expected to take 15% of the merged entity." The new bank will be the biggest bank in southeastern Europe, with assets of 146bn euros ($212bn; £129bn) and 1,300 branches. Eurobank shareholders will receive five new Alpha Bank shares for every seven Eurobank shares they own. And what would a bank merger be without ridiculous talk of synergies: The banks estimate that the merger will create about 650 million euros of synergy saving per year. Naturally nobody cares about this, as long as the first stake in the Greek bid for TBTFness proceeds as planned. That this step only delays the inevitable is irrelevant: for now the buying spree must resume. We fully expect the pro forma entity to eventually subsume all other Greek banks before finally it reverse mergers with the hollow ECB shell.

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Greece Activates Last-Ditch Liquidity Rescue Package To Preserve Its Financial System

The biggest news of the day today was not that some old crony capitalist had doubled down yet more of his non-taxable wealth on a bet Bank of America would yet again be bailed out, or that Wall Street is about to be sumberged under 3 feet of water. No, the most notable event from today was what we commented on in our first post from 7 am, namely that: "If we crossed through some spacetime vortex that brought us back in time just two short months ago, to July of this year, today's confirmation that the second Greek bailout has now failed, following the Finnish finance minister's comments that the country will defy Germany and will not give in to demands to abandon its deal for Greek collateral, which in turn has sent the Greek 2 year bond bidless, its yield up 227 bps to an all time record 46.38%, would have been enough to send the futures and the EURUSD plunging." Well, a few hours later, we did get a plunge, even if it was not in the US, but in Germany, where the entire local market flash crashed upon realizing what we noted hours prior: that Greece is now pretty much done. Yet it turns out there was more: unwilling to admit defeat yet, Greece was forced to pull out the last rabbit hiding deep in the recesses of the hat. As the Telegraph reports, "In a move described as the "last stand for Greek banks", the embattled country's central bank activated Emergency Liquidity Assistance (ELA) for the first time on Wednesday night." Such efficiency out of the Greeks for once- not a single Persian was harmed, or even needed, in this 21st century version of Thermopylae: the Greeks did it all on their own.

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Price Discovery Era Coming To An End As Spain, France, Belgium, Greece Extend Short Selling Ban "Due To Market Conditions" (Update: And Italy)

Kiss the free market goodbye. Spain's and France's regulator have both just announced that the short selling ban, which was supposed to expire tomorrow, has now been extended until the end of September 30, and November 11, respectively. Add to this Belgium and Greece whose regulators announced they will lift its own short selling ban "when conditions allow", or some time in October, in and we can pretty much be confident that the European market rout seen earlier is due to someone leaking the news that price discovery in Europe is now officially over.

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Greece Avoids Bank Run By Last Minute Bail Out Of Proton Bank

Alas, it is not a liquidity problem, it is a solvency problem. After delaying this realization for over two years, Greece, and Europe, are about to understand just how flawed "bailout" strategies that address the symptoms and not the cause, have been since the beginning of 2010. And while the world is engaged with the latest victim of the Bernanke-inspired, food-price inflation political upheaval better known as the Arab Spring, whose final stop is nothing less than Times Square, Greece quietly avoided the failure of smallish Proton bank (there is no FDIC backstop of failed banks in Greece), which would have resulted in a market wide panic, and a terminal bank run that would have toppled the Greek financial sector. Luckily, this was prevented in the last second courtesy of a capital injection in the last minute by the big 4 Greek banks. From the FT: "Greece’s four largest banks agreed to take up a €50m convertible bond to help recapitalise Proton Bank, a small lender, the central bank announced this weekend, in what is being seen as an attempt to avert a run on the country’s fragile banking system...“In this environment, it was essential to prevent Proton from collapsing and creating a mood of fear with unpredictable consequences,” said one banker, explaining the rationale for the take-up of the Proton bond." In summary, Greece was lucky... this time around, they had enough cash to save the smallish lender. The next time around they will not be so lucky.

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Greece Threatens To Unwind Second Bailout By Agreeing To Finland Collateral Demands

One of the biggest stories this morning is that European cohesion and solidarity is about to crumble after it was disclosed that Greece was pursuing a private deal with Finland in which Greece promised to collateralize Finnish contributions, in essence eliminating Finland's contribution to the Greek Bailout round 2. As Kathimerini reported, "Greece and Finland agreed on Tuesday to virtually cancel the latter’s participation in the former’s second bailout package, following three days of negotiations between Finance Minister Evangelos Venizelos and his Finnish counterpart Jutta Urpilainen. Finland’s share in the 109-billion-euro package amounts to about 1 billion, which Helsinki will pay to Greece but Athens will repay it through a new loan contract to be signed for this purpose and which will be valid for the next 25 years (likely to be the maturing period of the new loans, too). This means in practice that Finland’s contribution to the new package will be returned in full and deposited in a special account to be created by the Finnish government." End result is that everyone else has immediately come demanding the same treatment: first the Austrians, next the Dutch, and last the Slovenians. And what happens if Finland backtracks on its collateral demand: will it back out of the Greek bailout as well? Or, if Finland digs in, and all the non-German countries follow suit, will Germany say Enough and tell Europe (and China) to fix its own problems?

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Italy Is The New Greece, As Strikes Shift From Syntagma Square To Rome

Remember when on Friday, following the summary of the proposed Italian austerity measures, we said that "within a few weeks we expect the strike (and riot)-cam to be planted firmly in the Piazza Navona and across the streets ot the Trastevere in capturing the latest round of European indignation" and some assumed this was yet more sarcasm? Nope. As the AP reports, "the leader of Italy's largest union is threatening a general strike against an austerity package that Premier Silvio Berlusconi's government hastily pushed through to balance the budget by 2013 and avoid financial collapse. The threat came amid mounting criticism Sunday of the euro45.5 billion ($64.8 billion) package passed Friday in response to demands by the European Central Bank." Incidentally, $64.8 billion in cuts... out of $1.8 trillion in debt....that makes even the farcical $2.1 trillion deficit cut plan passed by the muppets in DC appear gargantuan in context. What happens when S&P tells Italy it has to increase the cuts fivefold to avoid more downgrades? At that point the strikes in Italy will be 24/7/365. And what happens when S&P wakes up and realizes that the same is applicable for France, and that any realistic cuts will force French GDP, which on Friday came at a very disappointing 0.0%, to turn wildly negative, as strikes next shift from Rome to Paris... Just how stable will that vaunted AAA rating of France be at that point? But of course, nobody will have been able to see it coming.

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South Korea Joins Greece In Banning Short Selling

Yesterday Greece, today Korea, tomorrow the world. The traditionally last ditch attempt by a regulator losing control of events: making short selling illegal, is starting to appear in random places, first showing up in Greece, and now in South Korea, where the capital markets commissioner just said no most shorting for 3 months. South Korea’s Financial Services Commission will also temporarily ease daily limit on amount of shares companies can buy back. This latest short selling ban has put many on edge, and following Italy's move to ban naked short selling several weeks ago it is now expected that at least several more European countries will follow in these footsteps, further eliminating price discovery and destabilizing market confidence and more.

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Greece Bars All Short Selling For 2 Months

And..... the idiots are back in charge.


No seriously, it will work this time. We promise.

Goodbye Greek stock market. For a case study of what happens next, check out Vietnam.

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S&P Downgrades Greece To CC From CCC, Expects Recovery Of 30-50% By Principal Bondholders

We view the proposed restructuring as one that would amount to a "distressed exchange" under our criteria because, based on public statements by European policymakers, the debt exchange or rollover is likely to result in losses for commercial creditors, and the objective of the debt exchange/rollover is to reduce the risk of a near-term debt payment default. Under our criteria, we characterize a distressed borrower as one that would--in the absence of debt relief--fail to pay its debt on time and in full.  While no exact date has been announced to initiate Greece's debt restructuring, we understand that it will commence in September 2011 at the earliest. Our recovery rating of '4' for Greece remains unchanged, indicating an estimated 30%-50% recovery of principal by bondholders.

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