When sharing our kneejerk reaction to yesterday's latest European resolution, we pointed out the obvious: "Portugal, Ireland, Spain and Italy will promptly commence sabotaging their economies (just like Greece) simply to get the same debt Blue Light special as Greece." Sure enough, 6 hours later Bloomberg is out with the appropriately titled: "Irish Spy Reward Opportunity in Greece’s Debt Hole." Bloomberg notes that Ireland has not even waited for the ink to be dry before sending out feelers on just what the possible "rewards" may be: "Greece’s failure to cut spending and boost revenue by enough to meet targets set by the European Union and International Monetary Fund prompted bondholders to accept a 50 percent loss on its debt. While Ireland won’t seek debt discounts, the government might pursue other relief given to Greece, including cheaper interest payments on aid and longer to repay it, according to a person familiar with the matter who declined to be identified as no final decision has been taken." There is one very important addition here: "While Ireland won't seek debt discounts" yet. And seek it will: after all, all Ireland needs is for its economy to mysteriously resume its deterioration. Purposefully. Impossible you say? Well, maybe. Or maybe the tricky Irish statistical bureau can just pull a page from their Greek colleagues on just how this is done. And Ireland is just the beginning. Very soon, and by that we mean 24-48 hours, every country in Europe that is undergoing "austerity" (which in Italy's case means increase the retirement age by 2 years over the next 15 years, or 49 days per year), will see its striking (and rioting) fringe elements demand just the same that Greece got, and probably far more. Which then goes right back to the question: yes, French exposure to Greek banks is limited. But what about Irish, Portugues, Spanish and finally Italian exposure? Will that be something to be a little more worried about?
Bloomberg with more on the first of many at the concessions trough:
“There’s a political problem for the government,” said Gavin Blessing, a bond analyst at Collins Stewart Plc in Dublin. “The Greeks, who are seen to be behaving badly, get rewarded, whereas the Irish, the top boys in the class, get nothing.”
While Irish bonds delivered the world’s best returns during the past three months, they have pared gains on concern slowing economic growth worldwide will derail the government’s efforts to revive the country’s fortunes through exports. The yield on debt due in 2020 rose 63 basis points in October to 8.26 percent yesterday, albeit down from 15.5 percent in July.
Ireland was the second euro member to need a bailout and Prime Minister Enda Kenny is ruling out reneging on its bonds. Yet, he said this week he’s pushing his European partners for alternative ways of reducing Ireland’s “crushing” debt.
"Ireland is not Greece"... until it is.
“What is being done for Greece, including the steps that will need to be taken to make its debt sustainable, reflect a uniquely difficult situation,” Kenny told parliament in Dublin yesterday. “I cannot say it often enough or strongly enough; we will not be going down the same road.”
And Greece could not say it often or strongly enough how the first, then the July 21st, then so forth, bailout would be the last one. Ever. Seriously.
And so on.
Look for precisely the same development out of all the other PIIGS in the days to come. And courtesy of ISDA, hedging for the next re-contagion episode via CDS is now impossible. The only option: getting out of treasury bonds altogether. Yes, that means selling it all.
Good work Europe: you just bought yourself a few days... and shot yourself in the femoral artery at the same time.