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Greek Bonds Tumble, Yield Highest In 2 Years On Report Germany Prepares For Greek Default

Tyler Durden's picture




 

When everyone begins to draw up the contingency plans you know the end may well be nigh. 

Just two days ago FT reported that the Greek government — which has reportedly resorted to “acting like a taxi driver” when it comes to asking for money from creditors — has “come to the end of road” and is prepared to declare a default on its debt to the IMF (so no gas for Kiev?) if no agreement is struck between Syriza and the people who are not to be called “the troika” by the end of this month. Of course, Athens denied the “rumor,” without explaining how it planned to find enough money to make good on its obligations coming due in May. 

As FT noted, “a default would almost certainly lead to the suspension of emergency European Central Bank liquidity assistance for the Greek financial sector, the closure of Greek banks, capital controls and wider economic instability.” Couple this with unpaid pensions and salaries and you have the recipe for what we’ll call a “domestic issue” and by that we mean a popular uprising. In what may be an early attempt to head off (or at least ameliorate) such a scenario, Germany is reportedly prepping a plan to support Greek banks in the event Greece does in fact take the plunge. 

From Die Zeit (via Google translate):

[Berlin] is working on a plan that would allow it to keep Greece in the case of a sovereign default in the euro. According to information from the TIME fears the coalition in Berlin that the government in Athens in one of its payment obligations possibly coming weeks can not meet. In such a case, the European Central Bank (ECB) would have to stop supplying the country with the euro.

 

Last week, Greece could barely afford a due payment to the International Monetary Fund (IMF). The now-discussed plan aims to enable the ECB to finance Greece in case of a failure further . For this, the Greek banks would be restored to the extent that they can participate in the financial transactions of the central bank even after a bankruptcy.

All of this would be contingent upon Greece adopting a more conciliatory (and less taxi driver-ish) approach to reforms — we think it’s fair to say that the chances of that are rather slim. In the event Athens isn’t amenable to the plan, Zeit suggests the eurozone will then “facilitate” the transition to the drachma.

Prerequisite for such a concession is but how it is said that Greece are cooperatively show and was ready to meet the reform requirements. If this is not the case, will take a secession from the monetary union in buying the federal government. Even then Greece will but as far as possible be tied to Europe - through aid flows from Brussels to facilitate the transition to its own currency.

 

The German government has declined comment.

As a reminder, UBS raised the probability of a Greek default to 50-60% in an April 2 note which also featured this rather troublesome outlook:

The recent pace of progress is disappointing, so that we need to increase the exit risk probability from 10-20% to 20-30%. In addition, the risk of capital controls is substantial because a default would accelerate deposit flight. 

And from a more recent note:

The country’s cash reserves are running low and are likely insufficient to meet obligations falling due in May which means the pressure on Greece will mount over the next couple of weeks before the Eurogroup meeting on April 24th. A failure to agree a final list of reforms and prolonged withholding of bailout funds as a result would be a very negative outcome for Greece. 

Meanwhile, Greek banks are still hanging on thanks to incremental ELA increases even as talks are still deadlocked and the IMF "can't rule out" a destabilizing tail event. Via Bloomberg:

  • Talks on resolving Greece’s financial deadlock resume today
  • As negotiations for Greek economic reforms drag on, a further “crisis” that would unsettle financial markets can’t be ruled out, IMF says
  • Greece won access to more emergency cash for its banks; ECB raises the cap on Emergency Liquidity Assistance by EUR 800m to EUR 74b

*  *  *

As for GGBs, well, let's just say they are pricing in a bit of risk as yields climb to their highest levels since April of 2013:

 

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Wed, 04/15/2015 - 08:58 | 5993942 CrimsonAvenger
CrimsonAvenger's picture

Yep. A soap opera starring a bunch of ugly old boring people.

Wed, 04/15/2015 - 09:18 | 5994015 dojufitz
dojufitz's picture

Go baby Go!

Wed, 04/15/2015 - 10:18 | 5994327 tarabel
tarabel's picture

 

 

It is natural to see the increasingly desperate rhetoric issuing from the Greek government. They want to stay, are desperately scraping up money to meet their obligations, yet remain trapped by the daunting mountain of changes which are being requested in return for future assistance.

It would be wise for the Greek goverment to lay out exactly what sort of changes would be instantly imposed following a Grexit in comparison to what is being insisted upon by its current creditors and then let the people make an informed decision.

Too often, people assume that their choices are between keeping things the same or suffering painful alterations, when in fact the choices are between a managed alteration and a crushingly immediate one.

The same goes for everyone everywhere else. Vast change is coming.

 

Wed, 04/15/2015 - 10:57 | 5994515 Dodgy Geezer
Dodgy Geezer's picture

The problem they have got is that if you prepare for something you start planning for it and soon it becomes the single thing you are going to do.

Wed, 04/15/2015 - 11:04 | 5994544 Brazen Heist
Brazen Heist's picture

Alot of comments disappeared here.....hmmmm

Wed, 04/15/2015 - 11:55 | 5994871 pashley1411
pashley1411's picture

The new Greek governments only job, really, is to wring the best deal possible out the Germans.   So there will be more ups, and downs, than the perils of pauline.  

That being said, have some dignity; default, start from zero.     methinx its not going to happen.

Wed, 04/15/2015 - 12:06 | 5994932 Dicey
Dicey's picture

The sooner they get out of the illigitimate EU and the Euro the better for them, all this fannying around is pointless, grow a pair Greece!

Wed, 04/15/2015 - 13:57 | 5995557 assistedliving
assistedliving's picture

any printers on ZH?  

let me know who gets the contract to print drachmas ...and for delivery when...

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