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UK Furious At Proposed €7 Billion Greek Ponzi-Perpetuating Bridge Loan

Tyler Durden's picture




 

The two most important stories out of Greece on Tuesday were: 1) the IMF’s leaked report on Greek debt sustainability, and 2) the race to secure between €7 and €12 billion in bridge financing to hold Greece over until the ESM gets off the ground. 

Although a new program is in the works and should get the greenlight once Tsipras succeeds in forcing Greek lawmakers to legislate away their sovereignty and any semblance of pride they have left, Athens has bills that need paying, the most important of which comes due to the ECB (on its SMP holdings) on July 20. The Greeks must make the payment to Mario Draghi - otherwise the central would be compelled to interrupt the liquidity drip that’s keeping the Greek banking sector from collapsing altogether. There’s also the issue of public sector salaries and pension payments which Greeks would prefer to receive in euros as opposed to the IOUs suggested by German FinMin Wolfgang Schaeuble. 

We outlined the options available for bridge financing on Tuesday morning, noting that all alternatives involve creditors effectively paying themselves either literally or in spirit or otherwise entail the perpetuation of some manner of ponzi scheme (i.e. allowing Greece to sell T-bills to Greek banks). 

On Wednesday, the EU Commission decided to go the EFSM route and will look to tap €7 billion of the €11-12 billion that remains in the fund. The formal request by the EU Commission says the funds from the EFSM "aim to provide a bridge financing to allow Greece to face some urgent financial obligations until it starts receiving financial assistance under a new programme from the ESM [and] would safeguard financial stability in the Union and in the euro area."

This isn’t as simple as it sounds. The EFSM was replaced by the ESM and wasn’t really supposed to be used again, so going back to the well is problematic from a political perspective. There are a number of issues here, but for the sake of brevity, here’s FT’s summary:

The European Commission has submitted a formal proposal to use an EU-wide rescue fund to rush aid to Greece to ensure Athens does not default on €7bn it owes on Monday, a proposal that will require Britain to rally allies if it wants to block it.

 

If Athens were to default on the ECB bond, the eurozone central bank would be forced to pull emergency loans keeping the Greek banking sector afloat. “It’s the most European, politically and economically sound, readily available option,” said the EU official. "Without it, there is a risk the euro summit [agreement] won’t work."

 

The commission’s decision comes despite angry objections to the plan by George Osborne, the UK chancellor, who at a meeting of EU finance ministers in Brussels on Tuesday called it "a non-starter".

 

London is furious that the commission is risking inflaming British public opinion ahead of the UK’s referendum on EU membership, which will be held by 2017.

 

What funds would be used for an additional €5bn that comes due in August has not yet been decided, he added. The EFSM bridge loan would be for three months.

 

"This is not an easy option," Mr Dombrovskis said. "We are aware of serious concerns by non-euro member states."

 

If officials fail to reach a compromise, Mr Osborne will have to rally a number of EU members to block the proposal. Although he has the support of some other non-euro countries — both Denmark and Sweden registered their objections at Tuesday’s meeting — it is unlikely that Downing Street has enough allies at present to block the plan.

 

Even the formal attempt by Brussels to use this fund is a big political setback. Mr Cameron has trumpeted securing a "black and white" promise in 2011 that the fund would be mothballed so British taxpayers would not be part of eurozone bailouts.

 

The EU-wide EFSM was set up at the onset of the eurozone crisis with €60bn in lending capacity. When the eurozone moved to set up a new, permanent rescue fund for the currency union’s 19 members, Mr Cameron won agreement at an EU summit that the EFSM would never be used again for eurozone rescues.

In short: the UK isn't keen on being roped into this fiasco via implicit participation through the EFSM. 

In order to mitigate this, the EU will look to insure non-euro nations against losses on the bridge loan by pledging certain collateral as a guarantee. Here's FT again

One compromise EU officials are discussing involves indemnifying non-euro countries from any losses from the loans to Greece. It is not yet clear whether the move would be legally feasible and whether pledging collateral would be politically acceptable to eurozone countries.

And here is the punchline: 

As collateral, the eurozone could pledge the €3.6bn in profits from Greek bonds owned by the ECB.

So Europe will pledge profits from the ECB's Greek debt holdings as collateral for a loan to Greece that will be used to make a payment to the ECB for the very same Greek debt holdings.

As if that's not absurd enough, consider also that one of the alternative options to using the EFSM was returing SMP profits to Greece, so effectively, one bridge financing option is being used to collateralize another bridge financing option.

Just when you think the Greek tragicomedy has reached peak absurdity, Europe one-ups itself.

Efsm Request Formal Comm

 

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Wed, 07/15/2015 - 08:09 | 6314562 mojojojo
mojojojo's picture

Did Greece run out of fiat?

Wed, 07/15/2015 - 08:11 | 6314574 y3maxx
y3maxx's picture

Uhhhmmm.....Looks like the European Commission is in trouble, not Greece.

Wed, 07/15/2015 - 08:13 | 6314583 Occident Mortal
Occident Mortal's picture

Good luck getting any money out of Osborne!

Wed, 07/15/2015 - 08:20 | 6314615 XAU XAG
XAU XAG's picture

Sounds like there is no money.........................down the back of the sofa!

 

 

it's all gone

Wed, 07/15/2015 - 08:22 | 6314618 Manthong
Manthong's picture

Well hell, just restrict Cameroon to funding billionaire housing in the City and re-importing his terrorists.

Wed, 07/15/2015 - 08:25 | 6314630 Squid-puppets a...
Squid-puppets a-go-go's picture

the road to hell is paved with disingenuous, arcane complexity, it seems.

Because there sure as fuck arent any 'good intentions'.

Wed, 07/15/2015 - 08:23 | 6314628 Headbanger
Headbanger's picture

Yeah, what do all these fucking retards like Schauble think will happen next when Greece says no again?

That Greece just goes away and all problems are solved?

What fucking idiots.

Wed, 07/15/2015 - 11:13 | 6314640 XAU XAG
XAU XAG's picture

 

 

Ring Ring,

Ring Ring,

.....Hello

Hi Peter,

it's Paul here...............

Wed, 07/15/2015 - 11:36 | 6315445 skepsis101
skepsis101's picture

And so the great unraveling begins!  Fakery upon fakery.  United in disunion.  Fingerpointing in all directions.  Rats on a sinking ship.  "Ring around the rosie, pockets full of posie, ashes, ashes, we all fall down."

Wed, 07/15/2015 - 08:18 | 6314604 mojojojo
mojojojo's picture

If more credit is required, then the ECB can create more. Transfer the debt onto ECB balance sheet. The FED balance sheet is at 4.5 trill, and full of debt securities. Let the ponzi continue.

 

Wed, 07/15/2015 - 08:53 | 6314728 MrBoompi
MrBoompi's picture

I suppose they could do this, if they believe lending to a bankrupt entity is a good idea.  They can pretty much do what they want with Greece but they could never do the right thing, write off a large % of debt, with Italy and Spain (who knows how many more) waiting on the sidelines for their turns.  There is too much to forgive.

Wed, 07/15/2015 - 09:10 | 6314776 mojojojo
mojojojo's picture

The idea isn't to lend then have the lender default at some stage down the line. The idea is to extract wealth overtime.

Wed, 07/15/2015 - 08:13 | 6314579 Captain Debtcrash
Captain Debtcrash's picture

Talk about head in sand policy.  It will become self-evident that much of the debt in today's economy is not payable and thus is no asset.    My question is when those "safe havens" become worthless, what will become the preferred safe asset class. 

Wed, 07/15/2015 - 08:25 | 6314631 shovelhead
shovelhead's picture

Methedrine?

Wed, 07/15/2015 - 08:28 | 6314639 LawsofPhysics
LawsofPhysics's picture

A dependable tribe of people with tradable skills, beans, bullets, guns, etc.

same as it ever was...

Wed, 07/15/2015 - 16:11 | 6316771 omniversling
omniversling's picture

Printing presses...and 3D printers to print printing presses...

Wed, 07/15/2015 - 08:30 | 6314645 Anglo Hondo
Anglo Hondo's picture

If the Greeks don't eat soon, they be running out of fat.  Even the garbage dumpsters are now empty.

 

Wed, 07/15/2015 - 08:37 | 6314665 williambanzai7
williambanzai7's picture

SCARY EURO SCIENCE

Wed, 07/15/2015 - 08:45 | 6314694 MrBoompi
MrBoompi's picture

No, there's plenty of that available.  The problem is it has to be paid back by someone.  It is only issued to Greece as debt.  It's not a free handout.  Greece is unable to pay this money back and nobody else in the Eurozone wants to be responsible for paying it back, even if most of these "funds" are simply created with a few keystrokes.  Greece's creditors count on the interest payments.  This is why Greece's creditors are forcing loans on whoever they can to make sure the gravy keeps flowing.

Wed, 07/15/2015 - 15:12 | 6316521 Totentänzerlied
Totentänzerlied's picture

It is free if you never intend to pay it back.

Greece's creditors have finally realized (over the past 5-7 years, not last week) that they were dealing with, you know, Greece, and took rational steps commensurate with the enormous risk of default.

Speaking of gravy trains, Greeks are accepting any and all humiliating treatment just to keep the euro.

Wed, 07/15/2015 - 09:21 | 6314827 Ouagadoudou
Ouagadoudou's picture

But but .... Everything was solved last week end Juncker said 

Wed, 07/15/2015 - 09:21 | 6314828 Ouagadoudou
Ouagadoudou's picture

But but .... Everything was solved last week end Juncker said 

Wed, 07/15/2015 - 08:11 | 6314565 VinceFostersGhost
VinceFostersGhost's picture

 

 

UK Furious

 

Don't screw with the Queen bitchez!

 

You may not have realized it.....but yes.....she's watching.

Wed, 07/15/2015 - 09:26 | 6314865 BarkingCat
BarkingCat's picture

The only reason, when I buy gold, I avoid Canadian and Australian coins is because I didn't want the face of that old inbred and ugly cunt on my money.

Wed, 07/15/2015 - 08:10 | 6314573 gatorengineer
gatorengineer's picture

And Stocks rally on......

Wed, 07/15/2015 - 08:14 | 6314582 VinceFostersGhost
VinceFostersGhost's picture

 

 

You could turn off the lights and shut the doors and that crap would still go up.

 

I hope in 100 years someone writes a book and uses that line.

Wed, 07/15/2015 - 08:23 | 6314624 XAU XAG
XAU XAG's picture

Vince

 

Write the book now........................yourself

Wed, 07/15/2015 - 08:17 | 6314578 booboo
booboo's picture

ahhh!!! the old "I have a bridge loan I would like to sell you" scam hey.

Maybe set up a large pickle jar at each trading house located in London where donations can be collected for the greek relief effort, just a thought.

Wed, 07/15/2015 - 08:13 | 6314580 The Carbonator
The Carbonator's picture

The never ending shit show of shit.

Wed, 07/15/2015 - 10:08 | 6315038 divingengineer
divingengineer's picture

Once you get used to the smell, it ain't so bad.

Wed, 07/15/2015 - 08:14 | 6314587 Bank_sters
Bank_sters's picture

This is all about the transference of debt obligations into real shit- Garage sale in Greece!

 

Wed, 07/15/2015 - 08:20 | 6314610 cossack55
cossack55's picture

Actually it would be a garage sale in the Mediteranian and Adriatic. Greece just happens to be sitiing on different tables.

Wed, 07/15/2015 - 08:16 | 6314595 ANestIOS
ANestIOS's picture

tragicomic scenes across europe - so much so that US Lew is doing a cameo

Wed, 07/15/2015 - 08:17 | 6314602 Wild Theories
Wild Theories's picture

Ah, circle jerks.. I mean, circular payments

the Japanese have taught us much

Wed, 07/15/2015 - 08:17 | 6314603 Brazen Heist
Brazen Heist's picture

These Eurocrat clowns are stumbling all over the place. Breaking their own rules and getting entangled in their own webs.

Wed, 07/15/2015 - 08:26 | 6314614 VinceFostersGhost
VinceFostersGhost's picture

 

 

Kinda like George Will and Eric Kraughhammer.

 

Donald Trump who?

 

What's this crap about illegal aliens.....when did that become a problem?

Wed, 07/15/2015 - 08:26 | 6314635 LawsofPhysics
LawsofPhysics's picture

Yes, moral hazard is a real motherfucker.

Wed, 07/15/2015 - 08:23 | 6314627 shovelhead
shovelhead's picture

The UK is so furious they're becoming apoplectic.

We expect a tersely worded statement shortly.

Wed, 07/15/2015 - 11:13 | 6315133 BarkingCat
BarkingCat's picture

They should rename it from UK to UKS for United Kingdom Of Shit.
While they are at it rename the Labour party to the National Abortion party, as their policies pretty much caused the nation to abort itself.

Wed, 07/15/2015 - 08:26 | 6314632 LawsofPhysics
LawsofPhysics's picture

Correct, this has nothing to do with "saving the Greek people" and everything to do with saving western bankers and financiers!!!

Fuck em, in finance today these useless paper-pushers are nothing but overcompensated skimmers between the printer/computer (where money is created) and the producer/consumer in the real economy.

take their fucking heads already and turn them into something useful, like fertilizer.

Wed, 07/15/2015 - 08:36 | 6314664 Bazza McKenzie
Bazza McKenzie's picture

Rubbish, while your description of bankers may be justified, the money is not going to western banks, it is going to repay government institutions of the EuroGroup.  It is all to prop up the political EZ.

Wed, 07/15/2015 - 08:49 | 6314717 LawsofPhysics
LawsofPhysics's picture

..and who are the owners of the EuroGroup?

That's a good sheep.

Wed, 07/15/2015 - 09:26 | 6314864 ricksplat
ricksplat's picture

The money has already gone to western banks. It's gone. Disappeared. Sunk. It won't be coming back. Much of this sovereign debt is down to countries getting loans to bail out banks. It's shitty for the creditors who lent money in good faith, and it's shitty for the people on the ground who have to pay these creditors back, but as somebody said the other day, "it's not possible to put the toothpaste back in the tube".

Wed, 07/15/2015 - 08:25 | 6314634 Able Ape
Able Ape's picture

They shoot horses; why not shoot the EUC?....

Wed, 07/15/2015 - 08:28 | 6314637 pndr4495
pndr4495's picture

Central Bank loans to governments are backed by each central bank's citizen's taxes. There is no pressure relief valve under this system. When each country's citizens realize the true nature of how their labor is NOT being paid for, that there is no real store of value in the fiat money used to pay their wage- what will be the likely response? The pressure has been building since 1690 or so with the creation of The Bank of England. The system was not designed by enlightened men but by charlatans, hucksters and thieves frankly.

Wed, 07/15/2015 - 08:31 | 6314651 LawsofPhysics
LawsofPhysics's picture

You are correct sir, nicely put.

Wed, 07/15/2015 - 08:38 | 6314666 B2u
B2u's picture

Greece....RIP...death as a soveriegn nation  July 15, 2015.

Wed, 07/15/2015 - 08:40 | 6314670 earnulf
earnulf's picture

So if you have no assests to pledge because they are already pledged thrice or more, do you cease to exist?

So many financial folks are going to get corn holed and politicans are deserving of every lamppost coming their way.

Wed, 07/15/2015 - 08:44 | 6314690 NDXTrader
NDXTrader's picture

Yawn. Wake me up when one of these threats actually plays out. They will find $7 billion Euro in the seat cushions if nothing else

Wed, 07/15/2015 - 08:58 | 6314744 corporal
corporal's picture

So Europe will pledge profits from the ECB's Greek debt holdings as collateral for a loan to Greece that will be used to make a payment to the ECB for the very same Greek debt holdings.

 

Can you actually imagine, for one moment, going into a bank and trying to get a loan an suggesting a proposal along these lines as collateral?  You would be laughed out in a heartbeat.

Pure absurdity.

Wed, 07/15/2015 - 16:18 | 6316796 omniversling
omniversling's picture

Au contraire...you'd be offered a managerial or boardroom position, then taken up the road to meet the members of your new Lodge.

Wed, 07/15/2015 - 09:00 | 6314748 fredquimby
fredquimby's picture

Reminds of down the pub when your mate says: Hey, can I borrow a tenner (£10)? and you say Sure, here you go, oh, and it's your round (£10)

Wed, 07/15/2015 - 11:10 | 6315315 Temporalist
Temporalist's picture

Maybe if your mate was coughing up blood, already owed you $1000, and hadn't worked in 3 years.

Wed, 07/15/2015 - 09:03 | 6314754 Herdee
Herdee's picture

Integrate The Bank of England into the European ponzi scheme and suck them dry is a very clever German plan in the works.The old witch on the wizard of Oz had to do things "delicately".In the mean time,suck a few billion out of the English.They can print.

Wed, 07/15/2015 - 09:21 | 6314832 Piranha
Piranha's picture

we in sweden are interested in the city of hamburg

Wed, 07/15/2015 - 09:52 | 6314975 sagitarius
sagitarius's picture

rehypotecation

Wed, 07/15/2015 - 10:52 | 6315230 Luckhasit
Luckhasit's picture

ECB in 1997,2008, and at the dinner table now in 2015: Greece needs more money!

EU: Just make some shit up.

Draghi: Duh, what do you think I did at Goldman Sacs.  Pass the water, this food is too spicy. 

Wed, 07/15/2015 - 10:58 | 6315253 Phillyguy
Phillyguy's picture

Greece is finished. What is the EU going to do when the other Greece’s- Portugal, Italy, France and Spain encounter similar financial problems?

Wed, 07/15/2015 - 11:01 | 6315261 FrankieGoesToHo...
FrankieGoesToHollywood's picture

"We are furious and we are not going to do anything about it!"

Wed, 07/15/2015 - 11:05 | 6315273 Monetas
Monetas's picture

Bridge loan .... that would be some good shovel ready, Keynesian stimulus .... connect all the Greek islands with bridges .... connect the dots, anyone ?

Wed, 07/15/2015 - 11:08 | 6315296 MsCreant
MsCreant's picture

Greece is being thrown under the bus to prop up the global banking system. This is where our attention should be focused. No where else.

Wed, 07/15/2015 - 11:16 | 6315350 Monetas
Monetas's picture

Stop with the victim card .... everybody else who pays for Greece .... is being thrown under the bus .... the Greeks borrowed 45.71 Euros for every person on the planet .... a pussy is a marvel of nature .... tender but versatile and resilient .... Greek hookers .... get to work !

Wed, 07/15/2015 - 11:26 | 6315395 MsCreant
MsCreant's picture

I agree, we are all victims of a banking system (fiat currency, fractional reserve lending, lending at interest) that was NEVER SUSTAINABLE. Interest will always take money out of the regular system, requiring printing. Always. That printing will always dilute the value of the money we all hold, if we try to save. The fiat backed by nothing will fail. Always.

There is no "answer to the problem" because there never was one, it was always going to show up here. Greece just happens to be the one on the chopping block as we face a world wide collapse.

These folks have us focused micro, when we should be focused on the macro. They need to come up with a definition of the situation that says Greece is not in default, or the entire banking system fails, now.

The rest of this is theatrics.

Greece is doing nothing special to earn your hatred. The bankers, yeah, they did.

Wed, 07/15/2015 - 11:36 | 6315443 Monetas
Monetas's picture

I love the Greeks .... and I admire them .... for making a farce of the Ponzi .... I did exactly the same when I "burned" my credit cards .... to make my final gold purchase .... heh, heh .... but, I got no special treatment from my creditors .... and now I have no credit .... I accept the consequences !

Wed, 07/15/2015 - 11:11 | 6315319 Monetas
Monetas's picture

Cheaper stimulus package .... a lamp post for every hooker !

Wed, 07/15/2015 - 11:28 | 6315412 CHC
CHC's picture

If ALL of this damn attention - years of freaking attention - are being focused on Greece alone - this tells me that the entire financial system is literally teetering on the head of a fucking pin - ready to fall over any microsecond.

Wed, 07/15/2015 - 11:42 | 6315465 MsCreant
MsCreant's picture

YES!

Wed, 07/15/2015 - 11:29 | 6315414 Monetas
Monetas's picture

We only use 10% of our brains .... and women only use 5% .... of their special gift .... and they say a Negro's mind .... is a terrible thing to waste ?

Wed, 07/15/2015 - 12:03 | 6315573 farflungstar
farflungstar's picture

I love pictures of Cameron trying to look "tough" and "outraged"

I'm just so convinced he is a strong leader because of them...LOL

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