Brazil Government Preparing For Greek Default This Week, Valor Reports

Tyler Durden's picture

And 9:55 am update in which Mantega responds to Valor (and ZH) via Bloomberg:

  • MANTEGA SAYS BRAZIL ISN'T PREPARING ANY MEASURE
  • BRAZIL'S MANTEGA SAYS SITUATION IN EUROPE HASN'T WORSENED
  • BRAZIL MANTEGA SAYS GLOBAL CRISIS WILL CONTINUE
  • BRAZIL'S MANTEGA SAYS GREECE DEBT HAS SUSTAINABILITY

The lying has reached pathological proportions.

 

So far the only strategic use of "unnamed government officials" has been to leak rumors, whose sole purpose is to test the market's short covering squeeze potential and to discover just how long the half-life of one after another ever more incredulous rumor is. And since the only thing to come out of Europe in the past month in terms of problem resolution (no really: there has not been one policy that has been enacted since the July 21 Greek bailout), this is a useful strategy. Alas, as Europe is about to find out, this works both ways, because as Brazilian financial site Valor Economic reports, none other than perpetual optimist Brazil, the same country that is supposedly according to one set of rumors preparing to bail out all of Europe, with or without the rest of the BRICs, is now preparing for a Greek default within the week. From Valor: "Something must happen. Greece is a few days [from bankruptcy]" said a high official source.

More from Valor: "The Brazilian government "stands ready" to act and, if necessary, take such measures as the crisis unfolds in the Euro Zone, the source assured." Too bad once Greece goes it is game over as UBS described so eloquently for the second time in a row last night. That said, now that the only policy is for everyone to stick their heads in the sand at the same time, we doubt anyone will pay particular attention to this news for at least a few hours, when everyone will suddenly pay attention.

Full google translated Valor article:

The government held a meeting "tense" at the Presidential Palace yesterday. Back in the United States, where they met with authorities of other countries and with business, the President Rousseff and Minister of Finance, Guido Mantega, who evaluated the diagnosis of the global financial crisis has changed. The situation is worse than expected and may require the adoption of new adjustments in economic policy. The market is starting to bet that the Central Bank (BC) may accelerate the decline in interest rates.

 

Dilma and Mantega pessimistic and returned with the expectation that the crisis in Greece may have an outcome this week, with unforeseen consequences on the European financial system and therefore on the global economy. The President talked with presidents of several countries and with investors and entrepreneurs in New York.

 

Mantega already attended the annual meeting of the International Monetary Fund (IMF) and World Bank in Washington. He talked with the finance ministers and central bankers. During the past week, Dilma Mantega and exchanged phone calls and everything they had learned from qualified interlocutors do not rule out the formalization of a moratorium in Greece this week.

 

"Something must happen. Greece is a few days," said a high official source. The Brazilian government "stands ready" to act and, if necessary, take such measures as the crisis unfolds in the Euro Zone and its consequences on the European financial system, the source assured.

 

Until last week, the government's expectation was that there would be a worsening of the crisis out there, but without a break, such as occurred in mid-September 2008, when U.S. bank Lehman Brothers collapsed. The new round of crisis confirms the slowdown in the global economy, reflected in a further contraction of the Brazilian economy to what has already faced, but with the markets functioning normally.

 

It is on this background that the government decided to increase the primary surplus in public accounts for $ 10 billion (0.25% of GDP) in 2011 and commit to full compliance with target surplus also between 2012 and 2014. It was also based on this scenario that the Monetary Policy Committee (Copom) reduced, in late August, the basic interest rate (Selic), from 12.5% ??to 12% per year, a move that surprised the market.

 

Today, according to assessments collected in Washington, the reality appears more severe, which may force the government to adopt new measures. For now, not yet defined what will be done, but Brasilia was placed on alert. In the market, there is talk that the Monetary Policy Committee may reduce the Selic rate at its meeting on 19 October by 0.75 percentage point or even a point.

 

In the last minutes of the meeting, the Committee signaled cut of 0.5% percentage point in interest rates in October. The worsening of the international market is taking a gamble, however, a strong move by the Monetary Policy Committee. Today, the Fed chairman, Alexander Tombini, will speak to the Committee on Economic Affairs of the Senate. Her testimony is expected because it should indicate how you see the world situation and future actions of the BC signal.

 

Tombini returned from Washington with renewed certainty that no mistake in the diagnosis that prompted the Monetary Policy Committee to cut the Selic rate by 0.5 percentage points. Instead, the talk of the international monetary authorities and senior representatives from the world of finance, at the weekend, only increased pessimism about the future of the crisis in the eurozone and the sluggish U.S. economy.

 

This impression was reinforced yesterday by the decision of the President of the Central Bank of Israel, Stanley Fischer, to reduce the interest rate from 3.25% to 3% per year, despite the fact that the country's inflation to be above the official target - 3.4% in 12 months, given the target of 1% to 3%. The move surprised analysts around the world, but in the weekend meetings in Washington, Fischer, a former head of the IMF considered orthodox, have relativized the concern with high inflation at the moment.

 

"This shows how central bankers are concerned with what they heard in Washington. Fischer claimed that next year may occur deflation and not inflation. He made it clear in the discussions, the issue of inflation at this point is irrelevant," revealed the value of a participant in meetings in Washington.

 

In the Brazilian case, goes the belief that BC's inflation in 12 months will fall two percentage points between October this year and April next year, getting closer to the target of 4.5%. The picture, however, is uncertain to envision what will happen after that.