This page has been archived and commenting is disabled.

Fitch: Greece Will Default But Won't Leave The Eurozone

Tyler Durden's picture




 

Gone are the days when rating agencies couched the big fat inconvenient truth in big words and wordy phrases like "Selective Default" (predicated upon 90% acceptances of effective bond tender offers, which as has now become clear is not happening) when discussing Greece. French-owned Fitch let the genie out of the bottle this morning when it announced that it now expects Greece to "probably default" (as in the real deal, not some transitory paper definition), "but not leave the Eurozone." In other words, we have replaced one wishful thinking (partially default) with another (full default, but partial implications). Because unfortunately as most know, there is no charter precedent for keeping a bankrupt country in the EU and currency union. Which means eurocrats are now scrambling to not only lay the liquidity groundwork for a Greek bankruptcy (which they did last week with the global USD liquidity lines, which also conveniently lay out the timing for such an event) but also changing the laws furiously behind the scenes to make sure a Greek default does not violate some European clause, which it certainly will. All of this ignores the fact that the financial aftermath of a Greek default will hit the credibility of the ECB more than anything else. How bureaucracy can provision for that we are not too clear.

From Reuters:

Greece will probably default but will not leave the euro zone, Fitch credit ratings agency said on Tuesday, as pressure increased on the Greek government to push through with fiscal reforms.

 

International lenders told Greece on Monday it must shrink its public sector to avoid running out of money within weeks.

 

While widely expected, a Greek default would further unsettle already nervous financial markets, fuelling fears a precedent had been set for other struggling euro zone states and sending yields on other peripheral bonds sharply higher.

 

However, Fitch did not expect Greece to leave the euro zone, as some in markets have speculated in recent weeks.

 

"Concerns over the risk of a break-up of the euro zone are greatly exaggerated," David Riley, Fitch's head of global sovereign ratings said in a news release.

 

Fitch also said it did not expect any systematically important financial institution or sovereign to be allowed to default.

 

Contagion fears have put the spotlight on Italy and Spain's finances and yields on their benchmark bonds remain high despite austerity measures and regular European Central Bank purchases in the bond market over the past month.

Of course, once Greece sets the precedent that default is ok, and when Ireland, Portugal, and ultimately Italy, decide to use that approach, and recalling that French banks are on the hook for €410 billion to Italy alone, we wonder what French Fitch's opinion on that particular matter will be.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 09/20/2011 - 08:41 | 1688198 scratch_and_sniff
scratch_and_sniff's picture

SNB in the market?

Tue, 09/20/2011 - 09:02 | 1688263 Harlequin001
Harlequin001's picture

er, let's try not to mention the impact of a Greek debt writedown on already insolvent banks...

Leave the Eurozone?

and WTF should they? When Greece plunges into bankruptcy chaos we'll have a nice big fat juicy target for every other European country, and an all-new standard of living target for every single European.

The future's bright, the future's ...bullshit.

 

Tue, 09/20/2011 - 08:41 | 1688200 Careless Whisper
Careless Whisper's picture

The Morning Careless Whisper Report

 

Automated High Frequency Drone Attacks

http://www.washingtonpost.com/national/national-security/a-future-for-dr...

No Speeches, All Action; Gov Cuomo At 66% Approval

http://www.nypost.com/p/news/local/cuomo_hits_highest_rating_in_office_N...

Third Weapon In Border Agent Murder Revealed By Secret Tapes

http://www.cbsnews.com/8301-31727_162-20108240-10391695.html

Our BFF, British Royal Navy Issues Video Advice On Today's End Of DADT

http://www.youtube.com/watch?v=s7n5vEnxd5c

Germany's Newly Elected Pirate Party Has Nude Protest Of Airport Body Scanners

http://www.youtube.com/watch?v=wJsKuN6XnrI

Three Billionaires And A Bridge

http://news.muckety.com/2011/09/19/three-billionaires-want-to-sell-you-o...

Tue, 09/20/2011 - 08:43 | 1688206 Gandalf6900
Gandalf6900's picture

whaaaaaaaaaaaaaaaat???

Tue, 09/20/2011 - 09:07 | 1688302 midtowng
midtowng's picture

Just proof that they have no clue how this works, and no one else knows for certain either.

If Greece defaults and doesn't leave the Euro then the Euro is going to take a HUGE hit. Interest rates will shoot up for all the countries, including Italy and Spain. It will simply trigger the next round of crisis, except for nations too big to bail out.

Keeping Greece in the Euro will doom the Euro for certain. No Euro will be left unless they kick Greece out.

Tue, 09/20/2011 - 08:44 | 1688212 misterc
misterc's picture

You're all too negative in the short run. ECB will print. SNB stays pegged. Bank accounting rules are changed. Nothing happens (for at least the next two to five years). Futures are green. DAX is up 2%.

Tue, 09/20/2011 - 08:44 | 1688213 GetZeeGold
GetZeeGold's picture

 

Yes......we WILL default.......but we're staying in the basement with our Doritos and video games.

 

 

Tue, 09/20/2011 - 08:45 | 1688216 Robslob
Robslob's picture

BULLISH!

Tue, 09/20/2011 - 08:45 | 1688217 Irish66
Irish66's picture

Out of their minds.  Train wreck 50 meters

Tue, 09/20/2011 - 08:45 | 1688219 GeneMarchbanks
GeneMarchbanks's picture

'Of course, once Greece sets the precedent that default is ok, and when Ireland, Portugal, and ultimately Italy, decide to use that approach, and recalling that French banks are on the hook for €410 billion to Italy alone, we wonder what French Fitch's opinion on that particular matter will be.'

Now, Tyler, that would entail some foresight.

Tue, 09/20/2011 - 08:46 | 1688220 Captain Planet
Captain Planet's picture

salt water, bitchez!

Tue, 09/20/2011 - 08:50 | 1688221 The Deleuzian
The Deleuzian's picture

What's next? Oh I know... They won't default but will leave the EuroZone...Yep! the 2X2 box of possibilities is now complete!

Tue, 09/20/2011 - 08:47 | 1688222 Sophist Economicus
Sophist Economicus's picture

How bureaucracy can provision for that we are not too clear.

They don't need to UNTIL WE don't play along with them anymore..coming soon I hope

Tue, 09/20/2011 - 08:52 | 1688241 Ruffcut
Ruffcut's picture

The greece fire is not that big a deal. Let them get a capital one credit card so they can get air miles.

It is the globalist test case. To see how far they can hammer the citizen base, and get away with it. All the discussions are lip service. The plan was set and the actions are and have been underway.

The earth is converting to pottersville, one country at a time.

Tue, 09/20/2011 - 08:53 | 1688246 Return2Sanity
Return2Sanity's picture

Perhaps Greece should consider splitting into two separate countries which occupy the same physical space. The spun-off country would be known as “Greekster”, and would keep all of the past debts and the failing governance model, while Greece retains the brand name and only provides government services through the Internet. Greek Prime Minister Papandreou can hastily draft an email to other European heads of state saying, “Sorry. I messed up.” Greek citizens will automatically receive dual citizenship in both countries, and will pay two separate tax bills instead of one. Problem solved.

Tue, 09/20/2011 - 09:02 | 1688256 M.B. Drapier
M.B. Drapier's picture

Because unfortunately as most know, there is no charter precedent for keeping a bankrupt country in the EU and currency union.

Hang on. The EFSF is illegal under the EU treaties. The ECB's sovereign-supporting bond-buying sprees are illegal (or very close to the wire) under the the EU treaties. But default inside the Eurozone is 100% legal under the EU treaties: the treaties are very clearly set up to make default not only legal but more or less mandatory for bust member states after IMF assistance fails. Arguably sovereign default inside the Eurozone is economically infeasible for Greece (because it'll need a devaluation as well), or politicially infeasible (because other countries will be furious and will demand some kind of actual or symbolic revenge) but in legal/treaty terms it's no problem at all. Repeating the idea that you can't legally default inside the EZ is playing straight in to the hands of the Merkozy/ECB/etc. Big Lie that their actions are intended to save Greece or save the Euro, when of course in reality they're intended to save the banks.

Tue, 09/20/2011 - 09:15 | 1688338 drider
drider's picture

Greece defaulting and remaining in the eurozone is like saying that santa-klaus is real.

Oh well, let's remain calm until the actual default is delivered to the markets and find out if it will be accompanied by gifts...

If there are no gifts then there is no incentive for Greeks to remain in the Eurozone.

Tue, 09/20/2011 - 09:21 | 1688366 M.B. Drapier
M.B. Drapier's picture

I didn't say that Greece will default and remain in the Eurozone. I don't know if it's plausible that Greece will actually remain in the EZ after defaulting. That wasn't what I said.

Tue, 09/20/2011 - 10:02 | 1688513 drider
drider's picture

You are right, you only argued that is possibility under the EU treaties.

But the reality remains that there aren't any incentives for an indebted country like Greece to remain in the Eurozone after defaulting.

Not any that I can discern for the time being...

Tue, 09/20/2011 - 09:35 | 1688285 HitTheFan
HitTheFan's picture

double post

Tue, 09/20/2011 - 09:04 | 1688288 HitTheFan
HitTheFan's picture

ZH persists is misunderstanding the Euro currency. The Euro floats totally independently of any government(s) or economy(ies).

It is a unique currency, designed to take the place of the dollar in a few years time. It is more than 65% reserved by gold.

Greece has more gold per capita than China and the US.

Do some maths.

The Euro (currency) will thrive. Tackling Greece's bankruptcy is a good thing.

ZH is losing its way, just criticising everything. It mocked as Euro leaders sought to save Greece, it will mock when Greece defaults. Childish journalism that is.

Tue, 09/20/2011 - 09:14 | 1688336 GeneMarchbanks
GeneMarchbanks's picture

HTF goin for the trifecta of nonsense?

Tue, 09/20/2011 - 09:44 | 1688438 e-recep
e-recep's picture

Troll elsewhere please.

Tue, 09/20/2011 - 09:06 | 1688297 Dr. Engali
Dr. Engali's picture

Good Lord default already. Get it over with.

Tue, 09/20/2011 - 09:06 | 1688298 chrisd
chrisd's picture

I think Edward Harrison at creditwritedowns said the same thing. He has been pretty accurate

Tue, 09/20/2011 - 09:18 | 1688348 Dapper Dan
Dapper Dan's picture

Good news,  I will take one-in-six odds any day.

 

Sky News Newsdesk
International Monetary Fund says there is a one-in-six chance that Britain is in another recession

 

Tue, 09/20/2011 - 09:18 | 1688352 kurzdump
kurzdump's picture

Greece will never be allowed to leave the €-zone! Everyone speculating about a rebirth of the Drachme has no idea about what's going on in Europe. The € is the basis of the integration process. Greece will default in October if the extended EFSF is passed until then - resulting in a lot of troubles. The euro(c)rats will take advantage of the chaos to force people to agree on establishing the european economic government and launch the €-bonds. Mass media is going to tell the sheeples that this is the only solution to all the problems.

Think about it.

- Liquidity agreement of central banks
- Troika Punch and Judy show 
- Postponing the ESM (no longer needed)
- ...

Things have to become far worse than they are atm. They are all acting in concert...

Tue, 09/20/2011 - 09:48 | 1688456 reload
reload's picture

I think you are spot on, this is exactly what is being planned. It is going to be sickening to behold.

However the end result will be even more central planning, missalocation of resources and a huge increase in the burdens of regulation and taxation born by citizens and business. Euroope will become LESS competitive as a result and LESS democratic. 

Will we get any searching questions from the media, a debate enriched with critical thinking and detailed analysis. No, we will be led to a `this is the only solution` resolution like bloody sheep.

But if Greece goes bust and stays in the Euro, they need to hurry up the integration because if Italy / Spain go too, its game over. Perhaps Italy and Spain will be told to just hang on in there until the paperwork is in order, so as not to frighten the flock.

Tue, 09/20/2011 - 09:23 | 1688375 guasilas
guasilas's picture

Why should a Greek default force it to leave the Eurozone. Does a bust state(california comes to mind, but there must be others) have to leave the dollar zone?

 If Greece defaults, they will be left, hopefully with a manageable debt load, and it will be up to them to convince the markets that they are worthwhile borrowers.  With a bit of luck, europols and ECB stay out of this, so it becomes entirely a matter of Greece and the market.  If they cant convince the market, too bad, they can sell the Parthenon.

   The banks who have lent money they shouldn't have will take a hit and need to be recapitalised. This ought to happen at a much lower price than the present share prices, but the end result would be reasoinably solid banks.  Incidentally all the bankers options will be worth zero. What a pity.

 On the whole, it should consolidate the Eurozone rather than otherwise.

Tue, 09/20/2011 - 09:56 | 1688485 drider
drider's picture

Because then Greece would be unable to print its way out of the monstrous debt accumulated.

A default will most probably bring the wrath of people on the current government and all the political parties.

None will be calm enough to figure out if there are any benefits in remaining in the Eurozone.

Tue, 09/20/2011 - 09:26 | 1688383 swiss chick
swiss chick's picture

Hopium...

Tue, 09/20/2011 - 09:42 | 1688434 Caviar Emptor
Caviar Emptor's picture

But but the Whole World is riding on wishful thinking, Tyler. Isn't it wonderful? 

We always knew that some day, some how, we would all be driving that German sedan guided by Chinese GPS equipment while wearing an Italian suit, filled with Saudi oil (cracked in NJ) while listening to a Bollywood rave-mix delivered through Korean electronics. Perhaps a South American substance would be buzzing through our brain. 

This was the same dream they had at the height of the British Empire, sipping tea from Ceylon from Chinese porcelain sweetened with sugar from Barbados and lemons from Spain while admiring their Persian rugs and Ming vases 

Tue, 09/20/2011 - 09:49 | 1688461 Lord Welligton
Lord Welligton's picture

For Greece to (hard) default) without the ability to devalue its currency (leave the Eurozone) would be insanity^3.

The only way to grow their economy is to make agriculture and tourism more competitive via devaluation.

Yes it would hurt in the short term. But they would adjust.

 

If they stay in the Euro who is going to lend them money?

 

Tue, 09/20/2011 - 09:52 | 1688474 LongOfTooth
LongOfTooth's picture

"...If they stay in the Euro who is going to lend them money?..."

 

How about the U.S. Fed?

And the American people are allowing this shit to happen.  :-(

 

Tue, 09/20/2011 - 10:12 | 1688538 drider
drider's picture

Exactly, the only thing that Greece has gained during this Troika programm is a protektorat status. On the other hand the EU banks have benefited by allowing them time to off load some of the Greek sovereigns...

I don't think that any different prospect is going to be offered to Greece in return for remaining in the Eurozone.

Tue, 09/20/2011 - 10:36 | 1688651 msmith
msmith's picture

Market manipulation is the only thing holding up this market.  The S&P and the EURUSD are set to drop.  EURUSD http://bit.ly/qokwK8  ES http://bit.ly/nVGuGB  Crude Oil  http://bit.ly/p621GN

Wed, 09/21/2011 - 00:17 | 1691067 shokdee
shokdee's picture

>> START Jinn Tracking: Zero Hedge 001

French-owned Fitch let the genie out of the bottle this morning when it announced that it now expects Greece to "probably default" (as in the real deal, not some transitory paper definition), "but not leave the Eurozone."

One genie is //OUT// the bottle.

Released by: Tyler Durden on 09/20/2011 08:40 -0400

Tags: "Zero" "Hedge" "Fitch" "French"

Motive: Good/Bad/Neutral? - y/n/pp

Genie keyword: "DEFAULT"

Genie says: "A real default, not a paper one. Stay in the zone".

End tracking. STOP <<

 - - - - - - - - - - - - - - - - - - - - - - - -

Please help me track the genies.

Do NOT follow this link or you will be banned from the site!