Game Over? Senior IMF Official - "I Expect A Hard Greek Default This Year"

Tyler Durden's picture

While the US was panicking over a double zero jobs report, things in Europe just fell off a cliff. As both the WSJ and Reuters report, it seems that the second Greek bailout, following repeated and consistent disappointments by Greece which has resolutely refused to comply with the terms of its fiscal austerity program, has just collapsed.And with the US closed on Monday: long a counterbalance to European risk pessimism, this week (especially with the news fro the latest FHFA onslaught against global banks) may just be the one that "it" all comes to a head. But back to Europe, and more specifically Greece, which it now appears is doomed. "I expect a hard default definitely before March, maybe this year, and it could come with this program review," said a senior IMF economist who is keeping close tabs on the situation. "The chances for a second program are slim." It is not only Greece - Italy also thought it would sneak by with getting quid pro no and continue leeching off of Europe, or specifically Germany, indefinitely, at least until the ECB said that absent Berlusconi taking austerity seriously that implicit ECB support for Italian bonds would be yanked, sending the second most indebted country in the world into a toxic debt tailspin. And so it comes that after 2 years of waffling, Europe finally realizes that the piper always eventually gets paid. Alas, it is now far too late.

From the WSJ:

Talks over new bailout funds for Greece were suspended Friday amid disagreements over how to fill a government-deficit gap that once again is veering off track, raising doubts about the country's future access to finance and triggering renewed nervousness in financial markets across Europe.

The suspension pushed yields on Greek government debt to levels indicating that investors see a default by Athens soon as a near certainty: Interest rates on one-year paper blew out past 70% and two-year yields rose close to 50%.

The continent's stock markets also retreated, with the French market down 3.6% and the German market down 3.4%.

The suspension of the talks in Athens between the government and a group of officials representing the providers of Greece's bailout cash came, officials said, amid a dispute about how to address new gaps opening up in the government budget deficit.


"The Greek side insisted the missed targets are the result of the recession. The troika said recession played a part, but Greece basically didn't keep up with its commitments, so more measures will be needed to make up for the lost ground," said a person with direct knowledge of the talks.


"There is a clear disagreement that can't be bridged today," the person added.

Will it be bridged in mid-September, and is a market and EURUSD crash all that will take, as has been the case constantly? We will find out soon, although it increasingly appears improbable...

"I expect a hard default definitely before March, maybe this year, and it could come with this program review," said a senior IMF economist who is keeping close tabs on the situation. "The chances for a second program are slim."


Failure of Greece to meet its targets, growing reluctance by some euro members to continue lending and the fact that private-sector participation in a second bailout won't significantly alter Greece's debt profile are the primary factors, the IMF official said.

It gets worse: as Reuters confirms, the political turmoil has already spread to Germany, where all that is needed for wholesale conflagration that will sweep Merkel out of the cabinet is a tiny spark. This may just have been it:

Christian Lindner, general secretary of the Free Democrats, (FDP) junior coalition partners in Chancellor Angela Merkel's center-right government, said Athens was endangering European solidarity.


"The breakdown of talks between the Troika and Greece is a blow to the stability of the euro," he said at a news conference in Berlin.


Referring to Greece's failure to meet deficit targets set in exchange for a second bailout package, Lindner said Athens was shirking responsibilities to which it had agreed.


"This is not about non-binding statements of intent, but contractually secured reciprocity for the emergency loans," he said. "We insist these agreements are observed."

Goodbye Greece:

Separately, senior FDP official Hermann Otto Solms, a vice-president of the Bundestag and an economy committee member in parliament said since Greece could not handle its debt problem and it should consider leaving the euro.


"It should be considered whether a restructuring and exit from the euro would offer better perspectives for the currency union and Greece itself," he told Frankfurter Allgemeine Sonntagszeitung.


The pro-business FDP styles itself as a defender of the German taxpayer, a stance Lindner reiterated in his statement over Greece.


"Taxpayers in Northern Europe and especially Germany cannot accept inability or reluctance. In the eyes of the FDP, Greece must reaffirm its will for stability and reform."

Alas, a Greek departure from the Eurozone, which now seems inevitable, will have a major impact on Europe's financial institutions. This is, however, not news to the market, which over the past few days, has sent not only the Libor-OIS spread to 70.6 bps (up 5bps overnight), or its widest level since April 2009, but has pushed Libor higher for 28 consecutive days - the longest stretch sine 2005, to its highest since August 19, 2010. Furthermore, the spread between the minimum and maximum 3 month USD Libor as self-reported to the British Banker Association, has hit a 2011 wide.

So is the worst bank some derelict husk of toxic assets like Barclays and RBS? Yes... RBS is certainly #2 in the top three highest reported Libors, or institutions that find it most difficult to procure USD funding. So who are the other two most troubled banks: SocGen? BNP? Bank of America? Nope...

That's right: CSFB and UBS. It appears that in a parody of Biblical allegory, the first shall indeed be last, as what was once a bastion of liquidity and solvency, Switzerland and its indomitable banks, is the first to topple should Greece finally be kicked out.

And should the two biggest Swiss indeed banks go out with either a bang or a whimper, then, well, all bets are off.

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moonstears's picture

So BAC down the tubes, Tues?

Highrev's picture

Now it only remains to be seen if this has already been priced in or not.


dogbreath's picture

Do you think there are enough prosecutors   and

or will they drop the charges because they believe it will be impossible to get a conviction with the evidence as it stands

spiral_eyes's picture

I think a lot of wall street people (especially goldman) want a crisis to take down rivals, like they did with lehman, and acquire the juiciest parts for pennies on the dollar. 

I also think that all the prosecution and regulation is a temporary panacea. It won't remove the problem, because the problem is the parasitic megabanks.

Only the full crash — the so called zero that gold hedges against — will remove the problem. And the crises will keep coming back 'til we get it.


moonstears's picture

Got Silver, bitchez?

goldm3mb3r's picture

Some people seem to be hoarding Bitcoins. Good luck with that.

Eireann go Brach's picture

Tim Geitner just shit his pants according to a local reporter in NY, the stain was clearly seen on the left trouser leg as he got up to leave the lunch table, reports are the other caller was some guy called Ben crying and screaming on the other end!

Newsboy's picture

What is the global new deal gonna' be?

"PArtial Gold Standard"?

How will that squeeze me and save banks?

BarryG's picture

Have you seen former Brit PM Gordon Brown's comments about the agitator of the financial crisis?

The country that was "providing the drinks" to the party?



spiral_eyes's picture

host of the party gonna lose 133% of GDP to ESFS!

trav7777's picture

the anglo-american banking system is rotten to its CORE and should be crushed.  All the confettiers should be done away with

scratch_and_sniff's picture

Indeed, and if they weren’t supplying all the drinks, they are certainly going to be providing the taxi's home. No one has manipulated this crisis more than the Germans, their motives are clear for everyone to see now with checkbook in one hand, stick in the other, the post-modern equivalent of the goosestep and Panzer. The German peoples are one of the most softheaded and malleable races on the planet, the government will keep bailing out and looking for eventual surrender of sovereignty of the peripherals, and the German people will sit back and watch it happen, just like they always do, they are legendary for it. Next up for Germany is an unholy alliance with the Russians. The best thing Europe can do is to part from the Germans while they still have a clean shot.

And those fucking frog munching spineless turncoat surrender monkeys are up for some of the spoils too, i dont want to spoil my sunday thinking about it.

Ghordius's picture

very logical

so for you Europe would be fine if you exclude the "manipulative while manipulated" Germans, the "unholy" Russians and of course the "surrender monkeys" French. From your tone I can imagine you don't care much for the Southern Wogs.

perhaps in Sweden we can find a few cute teenagers you would recognize as human?

pathetic - I wonder how much of ZH you understand - or perhaps you are just for the ads?

Ghordius's picture

you got me there - at my age trolls are still something out of Tolkien books and I never encountered a "Certified Troll" before.

P.S. How lunatic must someone be to set up a "Germany Watch" blogspot?

scratch_and_sniff's picture

It is logical, its not only logical but imperative they get rid of the Germans, they are poison. But they wont get rid of her, they will have to drag her out kicking and screaming, it will do all it can to stay in and control it; that’s why all these little dramas over Greece and the peripherals are nothing but a smoke screen - which you will see on 23rd sep when Schauble rushes through his bid for an overhaul of the EFSF, that guarantees limitless money for bond buying, the right to bypass parliament and enshrine taxation without representation, and also guarantees that ESFS commission members be given immunity from prosecution and remain free from any accountability. (come back to me whan that happens, and we'll continue the conversation)


They are also holding up the Euro exchange rate with China(Germany doesn’t care about 10c on the Euro, all its exports are high end and in high demand, people that buy Mercs and BMW‘s don’t worry too much), they pressed for rate rises in 2007 and again in 2010 and 2011 at the worst possible times imaginable, and that’s also why they wont be cut next week. Its not about not hurting Germany, its about turning the peripherals in to basket cases to pull off a power grab extraordinaire. Ireland is bucking the trend spectacularly, but the Germans and the surrender monkeys want her to concede her only competitive advantage and bring her corporation tax in line to seal her fate.

If the other members could create the Eurobond without Germany, they would have a combined debt market more liquid than Japan and only marginally smaller than the US, it would mean that the weaker members could no longer be picked off by the wolf pack, and Germany would go green with envy and promise to be a good girl. Someone needs to call Germanys bluff before its too late.

(as for not caring about the “southern wogs”, hand on heart, I couldn’t give a flying fuck about any of Europe, it’s a disgusting fudge and a dangerous, undemocratic monster that’s well past its sell-by date - it was designed to bring Germany in from the cold, now the Germans are hogging the fire while everyone else freezes to death)

PY-129-20's picture

Your rhetoric is a rhetoric of the past. It's symbolism is a relict of the past. Emotion is underlying your reasoning. You use images and symbols of the 20th century and you try to instill fear and to raise anger.

I agree with you that this currency union failed. But if you think it failed because of Germany, you are wrong. You think monocausal and that's why your explanation will always be wrong.

Other countries have used much stronger words than Germany. Netherlands, Austria and Finland are not making regularly headlines in this discussion, but they are basically on the same side as Germany. Germany is financing 27 percent of this bailout package and still it was not as offensive than Finland (which finances only a meagre percent).

But you use the old image of a Germany that wants to control Europe and create the Fourth Reich. This is the most ridiculous thing I've heard so far. Although Germany has a population of more than 82 million people, it still has the same voting power as other major European countries - GB, France and Italy. Spain and Portugal have more votes than Germany; (Italy 29, Spain 27, Greece 12, Portugal 12, Ireland 7; Germany has 29 votes).

And even if you look at the top EU politicians - van Rompuy, Draghi, Trichet, Ashton, Barroso, Rehn - they are not German. Oettinger is the only German in a top position (energy department).

But I would be happy if Germany would leave this Euro experiment. It does not necessarily mean to return to the DM - which was a good and stable currency - we could create a currency  with countries that haven proven to be good and responsible partners - like Austria, Netherlands, Finland.

And btw: Isn't it a good thing that Germany today has a better relation to Russia? Even the US is improving it's relationship to Russia - as could be seen recently with the big oil partnership. In my opinion Germany should do the same as Switzerland - be a neutral country, do not interfere with foreign problems.

scratch_and_sniff's picture

"Other countries have used much stronger words than Germany. Such as Netherlands, Austria and Finland" The difference is that these countries actually mean what they say! The Germans say it because they are lying to their public and want to buy time. And if you think that Germany has all of a sudden become a big cuddly Euro teddy bear, then you are either German, or mad. Don’t take my word for it, here is STRATFOR's take on Germany;

"German power will creep back into the world as Berlin attempts to grow its economic domination of Europe into a political structure that will last for decades. The European debt crisis is a catastrophe by all definitions save one: It is enabling the Germans to use their superior financial position to force the various Euro nations to surrender sovereignty to a centralized authority that Germany controls. Unlike the Russian regeneration, the German return is not nearly as robust, multi-vectored or certain. Nonetheless, the Germans are manipulating the debt crisis to achieve the European supremacy by diplomacy and the checkbook that they failed to secure during three centuries of military competition. "

Couldn’t have put it better myself...

trav7777's picture

wtf is wrong with a resurgence of German power?  Are they going to kick out all the confettiers again?  oh nooooooo

scratch_and_sniff's picture

Nothing wrong with any country becoming powerful Trav, the issue is how they go about taking power from others. BTW it has nothing to do with confettiers; if Schauble gets his way in September, the Germans have become the confetti master generals. (i dont have a particular gripe with the German joe public by the way, i spent some of the best years of my life in Germany)

PY-129-20's picture


- have you read the book of George Friedman "The Next 100 Years" ? Because I read it. Fine, it's his opinion and of course he admits that he has no crystal ball - but he was wrong on so many points and even after one and a half year after it's publication, you can clearly see why he failed to even see one year ahead.

Yes, from time to time they have a nice analysis - but they aren't some kind of prophets. Yes, I am German. I know the historical und cultural background of my society and I know how sensitive we've become about this topic. That's why I find it utterly ridiculous.

Sometimes I wish you could take our perspective for a moment here. A nation, divided into two parts for almost half a century, bombed into oblivion, millions of men dead or kept as prisoners of war, some territories lost forever (like Koenigsberg, East Prussia - millions that lost their home, refugees, not welcome in mainland Germany) - and the shame about the horrific deeds some of our men (and of course the regime as a whole) commited.

Of course we deserved some of it. Not all. We started that damn war, we followed a mad man. We weren't the first that slaughtered and butchered parts of our own (and that of other nations) population (not only the jews, but literally everyone that was against that regime) - It has happened in every culture in this world and unfortunately is part of human culture - it happened in Africa, in Cambodia, in China (Mao), Russia (Stalin), Turkey, Serbia, South America, Easter Island - and even the United States doesn't have a white shirt. I don't want to relativate this tragedy. The very German thing about Holocaust is to kill people in such an orderly fashion, almost like producing a car. A factory of death. With numbers and numbers to achieve. That's the frightening and scary thing about it. The complete dehumanization that happened in these few years.

Germany has changed. We are a nation of pacifists today. Some may find this irresponsible and not a good thing at all. Now you're saying we buy the influence with our money. Do you really think that would work? For years we sent billions to our European neighbours and we supported them - we found it was our duty to support them after all we had done to them many decades ago. We wanted a strong Europe - a partnership of strong nations. That was the plan for Europe - to be able to compete against bigger economic powers in the world - like the USA or China.

Look at the current decisions - the ECB buys Spanish and Italian bonds - you think that Germany is in favour of this policy? Maybe some politicians are (not all of them), but the majority of Germans and the Bundesbank is strictly against this.

You think we like this situation? Don't you see how uncomfortable this is for us? No, Germany never wanted to be completely in charge. That was more the part of France - to lead Europe and we assisted them, glad we could mind our own business. And that's the only thing that you could criticize about us - that we minded our own business for years and years and did not criticize the irresponsible behaviour of our own neighbours earlier. Why didn't we do it? Because we were afraid to be seen as the old Germany - that Germany that wanted to control Europe.

And now everywhere images of that old Germany reappear - Merkel as Hitler, Germany trying to create the Fourth Reich. No, this is far from our real intentions. In fact, we wish we wouldn't be in charge - that France could lead the way out of this. But France is in a weak position and now everyone expect us to deliver the answer. And we are stunned and feel uncomforable about this.

I can understand the fear - we invaded the countries, occupied them, bombed them, killed their people, destroyed their sovereignty and looked at them as Herrenmenschen - I can understand that fear. Quite remarkable given our history - for almost thousand years we had no influence at all in Europe, because the HRR was weak. Other nations strived to conquer the world - like the British Empire, the French, the Spanish, the Portuguese, even the Dutch - meanwhile Germany did not even exist - hundreds of little German principalities existed. Easy to manipulate them and to gain control over Germany. I'd say it changed with the French occupation during the Napoleonic Era. For the first time everyone longed for a strong German Empire that could not be defeated by any foreign power. And with 1871 that spirit established the era that lead to the first world war and finally with WWII our reputation as fierce and cruel warrior was created (of course nourished with the knowledge of the Ancient Rome and their tales of Germanic tribes and the defeat of Varus). The Huns - Barbarian hordes. Quite remarkable for a nation that had so many great minds (musicians, philosophers, writers, engineers and inventors).

Isn't it remarkable that the French nation, a nation that once had a great conqueror like Napoleon, that helped the Americans with guns and troops during the Revolutionary War, is today seen by some Americans as a nation of wimps and cowards?

I respect and love the French and I wish that we would not be in this situation today. I hope that this will not create another war in Europe. The Euro is not a currency of peace as many had hoped. Instead it created unrest, uneasiness - it also brought back the ghosts of the past.

Sorry for any errors and for the long reply.




scratch_and_sniff's picture

You're right about STRATFOR, they have come out with some howlers in the past and will no doubt continue the tradition well into the future. I cant say i am an expert on geopolitics, probably as naive as they come, but one thing i believe is that there is a certain calibre of scoundrel that toils away in the dark recesses of all governments, intelligence and security services, and foreign policy offices that actually thinks in terms of political and geographical hegemony, coming up with new and exciting ways to exert dominance and power over other regions is probably part of the basic job description, and this crisis would have them with a hard-on. These kind of scumbags exist, you are not one of them, me neither, im just an ordinary guy and understand how you feel, and none of that shit was done in your name. (Its scary that you have so much faith in your politicians!) The only thing I assume about STRATFOR is that they are thinking along the same lines(if the shoe fits)…whether they are right on any particular point is another matter.

PY-129-20's picture

No, I don't have much faith in them. I just don't think that all of them intend Germany to be the controlling power in Europe. I don't totally disagree with you. Certainly there are politicians (scoundrels) that may see this as a chance. Maybe career politicians - like von der Leyen or Schäuble. But they are both not popular in Germany. Many see them as a threat to democracy.

In fact, I despise most of our politicians. It is not different here than basically everywhere else. Most people are disappointed and frustrated about politics. They don't feel that they are representated by the politicians anymore. Now the cynic in us might remind us that this was never really the case. But here in Germany I feel that we are at a point were things need to change - our constitution was ripped apart. As explained in another thread - this constitution was somewhat sacred - given the experience and the outcome of WWII.

I just wanted to say this as a German, because I see these discussions in my country every day. The outcome of that war has changed our national psyche completely. Many Germans are strictly against any military engagement - not in the Kosovo, not in Afghanistan, clearly not in Iraq or in Libya. And you may criticize that attitude. But you need to keep in mind that basically not long ago everyone was happy about that. Never again. Niemals wieder. That was the slogan. No German troops on foreign soil. You know - it is somewhat ironic that the Greens started the first war after WWII. A party that always consisted of pacifists. It also shows how shameless politics is.

They always wanted to be the sidekick of France - important, but not leading the show. And now everyone is demanding answers and solutions by them. They don't have any.

I am glad to be just an ordinary German as you put it. These are difficult times. And I see our democratic rights taken away by people like Schäuble. As a citizen I will do my duty and there is a very high probability that you will see me in the coming months on the streets fighting for more democracy. I have a feeling that it will be not different in other countries around the globe.

Ordinary people - like Christmas 1914. That's the real shame about all wars.

Léonard's picture

Next up for Germany is an unholy alliance with the Russians. The best thing Europe can do is to part from the Germans while they still have a clean shot.

Germany will never separate from Europe nor will Europe separate from Germany. What Americans fail to understand is that Europeans are tied with a long time common history and unique common cultural backgrounds. We are talking about several milleniums old nations overhere, not about a 200 years old immature country build on Ponzi schemes and bases on a throwaway society.

What you will see is Europe kicking the American puppets out of the offices and turning its back on the Anglo-american world, then making alliance with Russia and Asia. The partisans of sovereignty and the European nationalists are already working on that.

trav7777's picture

the nations there are not several millennia old, you idiot

JLee2027's picture

Time to stock up on food and ammo for the winter?

cossack55's picture

Best move quickly. The nimble always survive.

Jasper M's picture


The savannah of Africa is littered with the bones of the nimble. There's a Lot more to survival than speed and reaction time. 

cossack55's picture

Hmmmmmm.........please insert usually for always. Thanks.

flacon's picture

Just don't be at the back of the pack. 

cossack55's picture

Has anyone seen Greek officials pow-wowing with any Icelandic types lately?

Bam_Man's picture

Well, the Greek one year is yielding SEVENTY PERCENT. "Hard default" within a year is not a bold prediction. More like stating the obvious.

oogs66's picture

Zh was one of few places that pointed out Greece 1 year price on Friday. Right before a leg down for stocks.

pain_and_soros's picture

Beyond Konichiwa, my Japanese is quite limited, but in universal sign language, it looked to me like he was giving a finger to the cameraman.'s picture

I think that guy is maybe seing one of those double rainbows or something.

jm's picture

I want what he was smoking.

B-rock's picture

That's the new planking. Radioactive pointing.

moonstears's picture

Eventually Greeks must go, and others as the EU must get down to 10. I once read John's opus, known as Revelations, Ch 17 to be exact.

DeadFred's picture

But if half the toes are clay you need to keep the P I I G S right? Don't get too hung up on the literal numbers where symbolism is involved. 

Spitzer's picture

Greece can easily default its way out of debt and still get competative. They will just have lower Euro denominated incomes.

Sudden Debt's picture

I do think everybody knows where this is going to.

The more austerity and the more debt the faster the downfall. Europe had one chance to stop this default and that was a masterplan for the south.

Bring industry to greece but not at current wages.

Also there does need to be a austerity but only in the wages of the government employees, and only in fase 2 should they start firing them and sending them to that new industry.

That are a lot of "if's" and they didn't happen. It's to late now.

Now the same for Spain. They'll blow it. But if they did it, they could save Spain. A bit the same kind of plan that was used for eastern Europe but with 5 times the speed.


swissaustrian's picture

Spain can´t be compared to Greece imo. Their debt/gdp is lower than Germany´s

ShoeShineBoy's picture

that might very well be true in and out of itself, but one only needs to look into the bubble of the bubbles housing market, insufficient loan losss reserves of banks and said banks' funding needs, yet alone i dont even want to mention the dire states of cajas... So, you sure, you still want to compare Germany to Spain..?

swissaustrian's picture

Do you really think that Germany´s banking sector is better off?

Deutsche Bank has the 2nd lowest TCE of all big banks in Europe.

Commerzbank is already partially nationalized.

HRE is a bad bank.

Several state banks ("Landesbanken") are also zombies.

ShoeShineBoy's picture

I see your point but still i do.. Yes DB's assets/German GDP is high etc, but DB is a global bank, assets held in UK, Germany, US, Japan, etc.. SO, ho much of toxic stuff in Germany is big question.. DB has good earning power as well. Commerzbank and HRE not that much and Landesbanks, what a pain to Germany.. Yet, there was not any bubble whatsoever in Germany.


However, never forget, other than BBVA and SANTAN, even their SPanish books and fundings are questionable, all the other banks are "mostly" local in SPain and they still have looooong way to go to clean up and mark to market those fancy Spanish beach houses which are currently occupied none other than ghosts..  Their TCEs? well, if you mark them to reality, you will see. I am sure Spainish government will try to pull another IPO rabbit funded.underwritten by said Spanish banks  like Cajas, but mr. market is lurking on the sideline waiting to be done with Italy, before Spain..

Highrev's picture

Spain is working on a Balanced Budget Constitutional Amendment (just to give you an 101 introductory example as to the differences).

Two very different social groups playing two very different games (one of which is for keeps and the other for handouts for as long as they're dumb enough to give).



knukles's picture

Yeah, but the Spanish speak Puerto Rican.

falak pema's picture

I think that ZH loves the doomers and gloomers who stoke the fire of 'we'll all be dead in four years' scenario...Greece will survive its melt down. They have a maze in Knossos, its five thousand years old...