Be Honest – The European Debt Deal Was Really A Greek Debt Default

ilene's picture

Courtesy of Michael Snyder of Economic Collapse 

Once the euphoria of the initial announcement faded and as people have begun to closely examine the details of the European debt deal, they have started to realize that this "debt deal" is really just a "managed" Greek debt default.  Let's be honest - this deal is not going to solve anything.  All it does is buy Greece a few months.  Meanwhile, it is going to make the financial collapse of other nations in Europe even more likely.  Anyone that believes that the financial situation in Europe is better now than it was last week simply does not understand what is going on.  Bond yields are going to go through the roof and investors are going to start to panic.  The European Central Bank is going to have an extremely difficult time trying to keep a lid on this thing.  Instead of being a solution, the European debt deal has brought us several steps closer to a complete financial meltdown in Europe.

The big message that Europe is sending to investors is that when individual nations get into debt trouble they will be allowed to default and investors will be forced to take huge haircuts.

As this reality starts to dawn on investors, they are going to start demanding much higher returns on European bonds.

In fact, we are already starting to see this happen.

The yield on two year Spanish bonds increased by more than 6 percent today.

The yield on two year Italian bonds increased by more than 7 percent today.

So what are nations such as Italy, Spain, Portugal and Ireland going to do when it costs them much more to borrow money?

The finances of those nations could go from bad to worse very, very quickly.

When that happens, who will be the next to come asking for a haircut?

After all, if Greece was able to get a 50% haircut out of private investors, then why shouldn't Italy or Spain or Portugal ask for one as well?

According to Reuters, German Chancellor Angela Merkel is already trying to warn other members of the EU not to ask for a haircut....

Chancellor Angela Merkel said on Friday it was important to prevent others from seeking debt reductions after European Union leaders struck a deal with private banks to accept a nominal 50 percent cut on their Greek government debt holdings.

"In Europe it must be prevented that others come seeking a haircut," she said.

But investors are not stupid.  Greece was allowed to default.  If Italy or Spain or Portugal gets into serious trouble it is likely that they will be allowed to default too.

Investors like to feel safe.  They want to feel as though their investments are secure.  This Greek debt deal is a huge red flag which signals to global financial markets that there is no longer safety in European bonds.

So what is coming next?

Hold on to your seatbelts, because things are about to get interesting.

Around the globe, a lot of analysts are realizing that this European debt deal was not good news at all.  The following is a sampling of comments from prominent voices in the financial community....

*Economist Sony Kapoor: "The fact that a deal has been agreed, any deal, impresses people. Until they start de-constructing it and parts start unravelling."

*Economist Ken Rogoff: "It feels at its root to me like more of the same, where they’ve figured how to buy a couple of months"

*Neil MacKinnon of VTB Capital: "The best we can say is that the EU have engineered a temporary reprieve"

*Graham Summers of Phoenix Capital Research:

First off, let’s call this for what it is: a default on the part of Greece. Moreover it’s a default that isn’t big enough as a 50% haircut on private debt holders only lowers Greece’s total debt level by 22% or so.

Secondly, even after the haircut, Greece still has Debt to GDP levels north of 130%. And it’s expected to bring these levels to 120% by 2020.

And the IMF is giving Greece another $137 billion in loans.

So… Greece defaults… but gets $137 billion in new money (roughly what the default will wipe out) and is expected to still be insolvent in 2020.

*Max Keiser: "There will be another bailout required within six months - I guarantee it."

The people that are really getting messed over by this deal are the private investors in Greek debt.  Not only are they being forced to take a brutal 50% haircut, they are also being told that their credit default swaps are not going to pay out since this is a "voluntary" haircut.

This is completely and totally ridiculous as an article posted on Finance Addict pointed out...

We now know that private holders of Greek bonds will be “invited” (seriously–this was the word used in the EU summit statement) to take a write-down of 50%–halving the face value of the estimated $224 billion in bonds that they hold. This will help bring the Greek debt-to-GDP ratio down from 186% in 2013 to 120% by 2020. The big question–apart from how many investors they will get to go along with this, given that they couldn’t reach their target of 90% investor participation when the write-down was only going to be 21%–is whether this will trigger a CDS pay-out.

That this is even up for discussion is mind-boggling. These credit default swaps are meant to be an insurance policy in case Greece doesn’t pay the agreed upon interest and return the full principal within the agreed timeframe. If they don’t pay out when bondholders are taking a 50% hit then what’s the point?

European politicians may believe that they have "solved" something, but the truth is that what they have really done is they have pulled the rug out from under the European financial system.

Faith in European debt is going to rapidly disappear and the euro is likely to fall like a rock in the months ahead.

The financial crisis in Europe is just getting started.  2012 looks like it is going to be an extremely painful year.

Let us hope for the best, but let us also prepare for the worst. 

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jonjon831983's picture

Which US chemical companies make components for explosives/black powder?

+ wondering if they export these to the rest of the world?

jonjon831983's picture

more of these mind game declarations "120% by 2020"... if things go to hell and worse by 2020, ppl won't even care some douche said it'd be cut to there by 2020.

theprofromdover's picture

I always feared there was an us, and a them; but believed in the general goodness of people and I hoped there wasn't. We have now had at least a decade of mainstream, overt greed. At least (in the past) embarrassment kept it in check.

If the people can't be bothered revolting, and the media refuses to be the people's champion, perhaps the only solution is for voters in each country, state, region to start thinking of secession. There is no way a captive mainstream media will promote any free-spirited anti-demagogue.

If various US states, Bavaria, Saarland, Guangzhou, Shandong, Scotland or wherever, started to self-determine and take control of their finances, currencies, laws and social needs, then perhaps there is a chance to avoid a 10-year global depression. Competition is the only hope for growth. It gives you energy and application, gives you a benchmark to compare your true performance, reduces unneccesary government red tape, and encourages innovation. It also strangles worldwide corporate monopoly.

Everything else currently on the table just shuffles debt around and stimulates theft by the banking and corporate class. They are taking your pensions, your savings, your wages, your freedom. And much worse, they are doing it to your unborn children.

This is an asymmetric war, small is beautiful.

LawsofPhysics's picture

The debt is a fraud, period. All the "paper wealth" is not real. Look around you, see the folks who work for you or bring real value to your life, compensation needs to return to these people. The only people who should fear a collapse of the entire system are paper pushing fucknuts. Sorry, but I say let it burn.

thewhitelion's picture

"The big message that Europe is sending to investors is that when individual nations get into debt trouble they will be allowed to default and investors will be forced to take huge haircuts."

"Allowed to default?"  What the hell does that even mean?  If a borrower can't or won't pay, that's a default.  "Allowed" or not.  In real life, anyone is allowed to default and face the consequences--except those with student loans.

OneLessZombie's picture

The point should be for any investors in bonds:  Don't buy them.  Why bother?  The European system will end up monetizing their own debts by printing money out of thin air just as the U.S. does.  Let the system buy all their own bonds.  That's what banks are for.  To take up ALL and ANY slack in the system.

Fact:  We are ruled by financial oligarchs.  That's all there is to understand.  If you play with them by any perceived rules of the game you will lose.  There are no rules except 'they win.'  Everything else is just smoke and mirrors.  Side show events to provide the false fodder of 'choices' to the masses.  You will never outguess them because they know exactly what cards are going to be played and all of their cards are trump cards.

So shut up citizen.  Take your seat.  Get back to work.

falak pema's picture


...Faith in European debt is going to rapidly disappear and the euro is likely to fall like a rock in the months ahead.....

Is this bad for Germany and Euro based markets? Isn't this what EU zone needs to restart the growth pump. I thought the whole FED USD devaluation strategy is to avoid the dollar from appreciating vis à vis Euro, Yen and Yuan. $ Appreciation kills WS and the whole debt devaluation by monetary inflation strategy.

We are in conflicting convulsions on both sides of the pond: Euro appreciation protects the banks but kills economic growth. USD appreciation kills WS, debt depreciation but protects reserve currency status. Its a lose-lose all  round. And its unsustainable.


Spigot's picture

To me the real news is the capitulation of the ISDA in ruling this is not a CDS event. Derivates Markets = ~poof~

This will destroy a lot of people.


Amish Hacker's picture

Rilly. How can ISDA unilaterally declare that the winning bets don't count this time? If you have fire insurance and your house burns down, can the insurance company declare that since the chimney is still standing, the event wasn't really a fire?

In a related story, the Texas Rangers have announced that the World Series this year will be the best five out of nine.

LawsofPhysics's picture

Well you know what they say.  War is an alternative form of negociation.  No casino stays in business if they don't pay out their winners.  And let's be honest, that is essential what we are talking about here, bets on bets.

entropos's picture


How the fuck am I supposed to read that?  Is it supposed to look like a shitty myspace page? If so it needs some shitty Evanescence playing whenever the page loads.  Then I might take the time to squint through the white text on a busy image background.

Matt's picture

I guess you didn't stay long enough on that awesome website. down on the right there is a link for music that opens a new tab to, so you can listen to Evanescence while "reading" the content on the website. Highlighting all of the text makes it hurt the eyes a little less.

DeeDeeTwo's picture

You put the "coon" in tycoon, baby.

The Reich's picture

The banks will surely not accept  a 50% haircut on a voluntary basis

Matt's picture

Didn't you get the memo? Euro Banks are the new charity, willing to help out anyway they can, even if it means losing money. They're helping do god's work.

Buck Johnson's picture

This sick game must stop but it's true, they have underminded the European if not the Western banking system.

theMAXILOPEZpsycho's picture

Oh those poor private holders of greek debt!!! Are you shitting me!!??

Yeh I agree about the CDS's but they should be losing everything, the CDS's should be payin out but the debt should be wiped out, no bailed out!

greensnacks's picture

Leave it to the Greeks to launch grassroots efforts on avoiding the new taxes and disrupting primary revenue streams. This haircut was a joke. If austerity doesn't push them into immediate default, surely elections will produce officials who will.

Civil disobedience in Greece grows over austerity

myne's picture

About the only option I can think of now is for the ECB to coordinate a massive operation to add say $E30,000 of inflation directly into every single adult's bank account and simultaneously increase interest rates to discourage new debt.

Basically, the debt has to be cleared. One way or another it will be. The banks have to be bailed out (in their minds).

By giving every single person a massive wad of cash, they will by and large pay down their debts. This money will flow directly into the banks as the originators of the loans. Thier tier 1 capital will increase, effectively deleveraging them. The interest rates will discourage imprudent borrowing, and will, along with the influx also improve the lives of the savers.

Lower debt servicing will free up some of the productive sections of the economy, and yes, prices for imports will rise as the euro adjusts down, but internally, the saving regions will be rewarded with relatively higher standards of living, and many prices should stabilise after a short sugar high.

They're not going to do this, of course. The favoured method of inflation is to bail the banks directly.

One way or another, the deleveraging will continue. At least this method will allow the debts to be cleared 'legitimately' - at least on paper.

theMAXILOPEZpsycho's picture

Even if they did that, I'd put my 30,000 in commodities, probably an agricultural fund plus I'd buy the dip in bullion

cdub's picture

So I should hold off telling my mortgage bank that I'm cutting my house principal in half but it's not a default? I was hoping to offset the loss in wage purchasing power over the rest of my mortgage. That what I get for living within my means, a nice kick in the n@ds.

Widowmaker's picture

Wait until you see the 2012 bonuse schedules for lying, cheating and stealing!

It reminds this poster of a Russian doll, only it's one endless crock of financial shit inside another, inside another...

Wake me when justice crucifies these fags.

Short fiat.

Blank Reg's picture

Perth mint makes a 1 ton coin.

The US Mint was going to do that, but Fort Knox didn't have a ton of gold.

PulauHantu29's picture

Greece should leave the EU and revert to the drachma.....announcing it will give 1 drachma in exchange for 1 eruo......

Creditors can still collect their debts but they would get drachmas instead of euros.

Euro bank accounts in Greece would be swapped out euros for drachmas....


BigDuke6's picture

I henceforth announce my new handle to be 'Dipbuyer'

the way they kick the can along the road so well... its fun just waiting for the time they cant kick it any fuhrer, i mean further... 

Westcoastliberal's picture

All these guys are doing is a high-stakes version of musical chairs.  Right now, the bondholders are "it".  But they'll next threaten to sue the CDS issuers, so next they'll be "it". Watch out for falling dominos.

If you agree with me that collapse is becoming unavoidable, don't despair, prepare!

puck's picture

What would pull the curtain back on these wizards in a way someone  had to change it?

Widowmaker's picture

Transparency, like any curtain removal occurs when you tear it down.

Shun lawless banks, their dirty paper, and most important the zombies in pinstripes that claim to run them.

navy62802's picture

The people who were too stupid to see this for what it actually was (a Greek default) deserve whatever comes to them. I feel no pity.

FlyPaper's picture

Geeze, what a snarky statement.   There are a lot of people who are just trying to save for retirement, know nothing about this financial mumbo-jumbo, and you are going to 'feel no pity' for them when the 'system' destroys their lives?

With that kind of karma I pray I don't live within 500 miles of ya.  That's gunna be one hell of a lightning bolt.   :+P

Widowmaker's picture

The millions you refer to should have stood up for justice when they had the chance.

Since you sound like a boomer, A good place to start would have been when JFK was shot and the forces of darkness took over money and the us political crime machine became entrenched.

It's been shit ever since due to pervasive abortions like vietnam, Iraq, and the warr on terror, etc. Broken fiat money is a symptom of something much more systemic and corrupt -- no justice.

All the proof you need is the present- you make and they take, with the fags all calling it gods work.

quacker's picture


I feel mightily for this guy about to retire, I’m not all that far behind him. But as a teenager back in the Carter and Reagan days we looked at debt charts and talked about how in 30 or 40 years there wouldn’t be anything left. I was hearing how Social Security would be toast by the time I need it since the 70’s. And that cartel of privately owned international banking interests, aka the Federal Reserve has been counterfeiting for decades and everybody was shaking in their boots afraid to stop it.

And where were the 18 year-old kids from 1968 who were protesting for a better world? By 1984 they were the 34 year-old Yuppies. What really is a Yuppie anyway than just a hippie who discovered the ponzi. They discovered how to use the ponzi to stuff their own pockets.

Now they’re 61 year-olds wondering why it’s all collapsing. Well, they were right there on the scene supposedly going to change the world in the 60’s. They then proceeded over the coming decades to ride one Federal-Reserve-generated bubble after another to stuff their own pockets.

And now they wonder how it’s all gone to shit in an unrecoverable way.


legal eagle's picture

Easy to judge others, what have you done?

theMAXILOPEZpsycho's picture

If it wasn't for millions dillegently working and saving in cash, thinking there was no alternative to bail out banks, thinking the sate will always provide, voting etc etc we wouldn't be in this mess. The karma will involve them losing eveything.

williambanzai7's picture

It is amazing just how dumb the herd is. Anyone who understands this stuff knew at the time of announcement what a crock of shit this plan is.

disabledvet's picture

not true. this is the only site truly discussing this issue (as with Fukushima et al) but the analysis has been far too convoluted since it's all so conspriatorial. As i've said repeatedly the essence of this crisis is credit flows far outpaced trade flows in Europe--now trade flows have long since maxed out and Europe can't turn off the credit spigot. I believe the credit event to occur which will be the biggest credit event ever recorded will happen to such a degree as to boggle the mind. It is now obvious Wall Street was the only place on earth that could actually handle the execution of a credit default "weapon of financial mass destruction" swap. this is JUST ONE. IT DAMN NEAR DESTROYED THE ENTIRETY OF NEW YORK and left the USA with trillion dollar deficits for "as far as the eye could see." What's going to happen in my opinion perhaps as soon as THIS WEEKEND...will make the Lehman event look like a blip on the radar screen. In short "this has been government business since day one" and only now is Wall Street waking up to this fact. Since there is nothing Wall Street nor anyone else on the planet can do about it "this Apocalypse Now moment is brought to you by Orville Redenbachers Sweet Buttery Popcorn. Orvilles: Sweet, buttery...and ohhhh so good." THIS WILL BE TELEVISED because the "EVENT" is already a done deal and all we need discuss here now is "what is being discussed literally at the highest levels of the Defense Department and going directly to the White House and the President." Namely: "here's how the United States is going to respond." If what i've been chewing over for two years now comes to pass it will involve a "Manhatten Project" for running the entirety of Europe. More interesting if this is true (and like i said this event could happen as soon as this weekend as interest rates explode higher throughout Spain and Italy and lead to an immediate collapse of France's financial system) it will be fascinating to see who get's "the prize": New York or DC. My money is on DC. Again...should this "mother of all credit events" come to pass. It is possible (however remote) that I am wrong. (In my opinion it's only about the timing and not the fact that this massive "mother of all credit events" happens.) Obviously stay out of Europe, stay out of commodities, start buying treasuries, it'll be fascinating to see what the dollar does...and what equity markets do as well. If the answer is "a whole lot of nothing" while The Event goes down...that too would be just extraordinary. Either way my view is that everyone of you are about to witness history on a scale not seen or felt since World War II.

Matt's picture

Interesting points. Now don't be afraid to press Enter once in a while to seperate your paragraphs. Empty space is not always wasted space, and it makes large posts easier to read.

kaiserhoff's picture

At the risk of agreeing with our resident communist, yeah, pretty much.

The map is misleading as the Danes, the Swedes, and the Brits kept their own currencies, and are less exposed to this horse shit.

theMAXILOPEZpsycho's picture

and the poles, the romanians, hungarians etc...I think eastern europe might be the place to flee to once it all blows up in the west; far more politically stable with a populace that seems to know the score...

kaiserhoff's picture

Hmmmm. Hungary.

How young do you like 'em?

earleflorida's picture

nice read,... ilene

my diagnosis is rather simple - we are in an interim [volitile?] phase shift [2008 market aftershocks from the u.s. ],...  that if geometrically graphed [pre 2008] was normally a sine wave, would/ will, now be a cosine wave about to collide with a parabolic secant event, which will rip' & tear the bond market spreads into a period of hyperbolic frenzy

it will most probably culminate in every known sovereign walling themselves into a foxhole

MFL8240's picture

The US will follow suit and anyone foolish enough to own dollars and US debt will be wiped off the map.

eatthebanksters's picture

And the worst would be?   Bitchez!

covert's picture

"bailout" is the new label meaning social redistribution. carl marx would be delighted.


Raphio's picture

We don't say "bailout" anymore - ahem - "institutional recapitalization"

And I hope your "short" link is accurate - cuz i went short large near the close today