Independent Strategy On "Greece The Ungovernable" - "Go short the euro and PIIGS debt — and hold on to your seats!"

Tyler Durden's picture

Must read update on Greece from Independent Strategy

Greece the ungovernable

  • The Greek PM's call for a referendum on the bailout package reveals that Greece is becoming increasingly ungovernable under the weight of fiscal austerity and recession.
  • Expect weeks of uncertainty in markets and rising contagion in other weaker EMU states. If the vote is lost, Greece will default. Stay short the euro and PIGS debt.

The decision by Greek PM Papandreou to call for a referendum on the latest Greek bailout deal shows that Greece is becoming ungovernable. The PASOK leader made this decision because riots in the streets, increasing refusal by civil servants to implement the austerity measures and the likely loss of his majority in parliament made the survival of the government unlikely within weeks or months.

So Papandreou has gone for broke. He hopes that by winning a vote on the bailout plan he can shut up the opposition both in parliament and on the streets. But this high-risk strategy threatens to bring the whole house of Euro cards down.

At best, we face two months of uncertainty before the vote. The Greek parliament must approve the call for a referendum and the President must agree. And then it depends on how the referendum question is worded. If it is ‘do you want to accept the latest bail out plan’ then the answer will be a resounding no. If they word it so it says ‘do you wish to remain in the Euro zone’ then the answer will be a resounding yes.

At worst, Greece may not even make it to mid- January before there is a disorderly default. Parliament could defeat a vote of confidence in the government on Friday and Greece would be plunged into elections, with the opposition likely to win on a programme of ‘renegotiating’ the bailout plan so tortuously agreed with the Euro leaders.

Also the latest tranche of official funding from the EU and the IMF under the old Greek bailout plan could be frozen if the government falls. Under IMF rules, it cannot disburse a tranche if there is no government. The EU would have to step up to the plate and provide all the funding until the election or referendum is over. Without this money, Greece would be bankrupt.

And just imagine if Greece heads into two months of a referendum campaign with riots and demonstrations in the streets. A run on Greek banks — Argentina-style — would become very likely. It’s true that the rich and many corporations have already moved their euros abroad, but the populace at large would soon be running to get their euros under mattresses fast if they thought that Greece was set to default and leave the euro.

The Greek public debt ratio may be heading towards 180% of GDP next year without the bailout plan, but if Greece leaves the Eurozone with a no-vote in the referendum, a New Drachma devalued by 50% or more would double that debt ratio.

The optimistic scenario is that the Greek parliament backs the government and a referendum campaign is conducted on ‘staying in the euro’,  which is won. The Eurozone and the IMF continue to finance the Greeks over the next two months before the new bailout package takes over. The 50% haircut for the banks on their holdings of Greek debt goes through with over 90% involvement; the banks receive funds to  recapitalise; and the EFSF is enhanced with new firepower to inoculate Portugal, Spain and Italy from the Greek nightmare. And the G20 meeting comes through with new measures of funding to help Europe.

The more you think about, the less likely that sounds. More likely, the uncertainty will undermine the efficacy of enhancing the EFSF through adequate funding from a Special Purpose Vehicle. It will increase contagion for Italy and Spain, increasing the cost of ring-fencing. And a  disorderly default would trigger losses for the ECB itself on its holdings of Greek debt.

Go short the euro and PIIGS debt — and hold on to your seats!

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Mongo's picture

I vote for chaos

Clueless Economist's picture

I have a crush on G-Pap...he is HOT

wombats's picture

Sounds like you need psychiatric help, new glasses, or both.

The Big Ching-aso's picture

Merkel then must really send ya over the top.

philipat's picture

It ain't over till the fat lady sings?

James-Morrison's picture

We all different, but in the end, we all fruit -- I mean toast.

Peter Pan's picture

Chaos is a Greek word and so are the words, austerity, panic, crisis, catastrophe, strategy, problem, method, scheme, kleptomaniacs, politicians, psychopaths, tyrants as well as economics and history.

In other words, this whole show has been going on with regular repeats for at least 2500 years. Back in Ancient Athens they were suffering a similar level of catastrophic debt burden amongst the people. Instead of hiring PhD economists to solve the problem, they appointed a philosopher for the task. He promptly wrote off whole swathes of debt and everyone got back to business.

Any philosophers out there?

eureka's picture

Sure - and what will bring down the whole US/FED/Wall Street/Pentagon/CIA/NWO  cardhouse? What US philosopher will write off US debt - when it all crashes next year?

Crash JPM and Wall Street TBTF banksters - buy silver.

UK debt marsh's picture

Beware of Greeks Airing Rifts

TheGardener's picture

Or so to say; they were suffering democracy. You got all the symptoms right, but not the disease.

And that guy offering jubilee on debts every 50 years or
so was Moses, but bashing the Old Testament is in vogue for
some centuries now ...

The Big Ching-aso's picture

Where's Apollo, Zeus, and Athena when ya need em'?

eureka's picture

And where are the "anglo-saxon" method saviors? Oh yeah, that's right, they operate their leverage, ponzi, fiat schemes out of London and NYC, flying high as a kite - or should we say as Icharos...?

Next to melt & nuter:  London & NYC.

rosex229's picture

at this moment the markets simply want to hear that there won't be a referendum. either g-pap will step down, or there'll be a no confidence vote on friday leading to new elections. all these results are quite negative, but markets only care about the next 5 minutes, not the next 5 weeks, or even 5 hours for that matter. i' mexpecting a bullish bump in stocks over the next few hours when its realized that no referendum will ever be held. of course, the long-term picture is as horrendous as ever.

SWRichmond's picture

I vote for chaos

Well, the haircut is looking like 100%, so you get your wish.

P.S. the Fed is meeting today, what a coincidence.

Nascent_Variable's picture

Sarkozy:  This is blasphemous!

Merkel:  This is madness!


thunderous chest kick to the Eurozone

Ancona's picture

They may preemptively vote themselves out of the union, return to the drachma and screw Europe by paying their bonds off US style, with inflated currency.

Maybe the Weimar Republic taught some valuable lessons after all!

Iriestx's picture

Coming soon:  ISDA rules that a full Greek default is not a CDS credit event.

fonzanoon's picture

From Bloomberg

U.S. banks increased sales of insurance against credit losses to holders of Greek, Portuguese, Irish, Spanish and Italian debt in the first half of 2011, boosting the risk of payouts in the event of defaults.

semperfi's picture

A 100oz silver bar in hand is worth 2 paper CDSs in the bank

The Big Ching-aso's picture

Or the equivalent of 4 dozen rolls of Charmin.

taraxias's picture

The Papa government will collpase in the next 48 hours. End of discussion.

Sudden Debt's picture

In europe, 48 hours won't get you anywhere.
48 days is more like it, they need to discuss a bit more on the topic.

HedgeAccordingly's picture

This chart is real healthy.. loooks like the sell on the close of cash yesterday.. 'knew' somethign -

XXL66's picture

Does G20 stand for G-forces on this ride ?

Sudden Debt's picture

Yep, it pulls out every gold filling you've got if you on this ride

Peter Pan's picture

I am not sure. But I think Mr Pap in Greece has hit tEurope's G-SPOT anyway.

scatterbrains's picture

or is it 9.99 on the Bovine scale ?

Zero Govt's picture

...and in the 'birthplace' of democratic government too

couldn't happen to a nicer institution for thieving scum

orkneylad's picture

"...and in the 'birthplace' of democratic government too"


and ass f***ing remember   ;-)

Zero Govt's picture

and that too ...we're at orgy levels for anal in Greece, the Papa ruling family have been pimping Govt for decades

Ralph Spoilsport's picture

"I'd rather be the only woman on a Greek freighter"

Peter Pan's picture

I think the capital for thieving scum might actually belong to Wall Street crooks and money printing Washington.

semperfi's picture

"..this high-risk strategy threatens to bring the whole house of Euro cards down"

Uh, got news for you bubba - come a little closer so I can whisper in your ear.........ITS ALREADY DOWN DOWN DOWN YOU MORON!!!!  BEEN DOWN FOR MONTHS!!  WHERE THE F HAVE YOU BEEN HIDING???

Jim in MN's picture

Recently posted on BBC


1343: Jonathan Berland, Managing Director, Gresham Investment Management: If a Greek referendum goes forward the most dangerous part is the precedent, not the outcome. #Italy
Note to self's picture

Folks's true colors start to show through under the stress.

taraxias's picture

thanks for posting that

reload's picture

Another democracy fearing financier then.

Huge cudos to ZH - the referendum news was on here waaaay before anybody else had it. Who says there is no actionable information to be found here? there most certainly is.


TooBearish's picture

Good luk wif dat! fighting the NWO....

stant's picture

collapse has a sound track now on cnbc. i am waiting for whom the bell tolls

homersimpson's picture

I think the song "Another One Bites the Dust" is more appropriate..

The Big Ching-aso's picture

"Mama Mia!!!!    Thisa Greeka Salad is afull of fetid cheese!!!!!"     Poppy Seinfeld


Rockfish's picture

Exploit the Now and prepare for the FUTURE

I will add to my Au stash.

Bloomberg just reported "market down only 200+ pts" I just shake my head.

Dr. Engali's picture

You should have heard CNBC trying to sell the market yesterday. " We are going into the last two months of the year."" History shows us that the last two months are the best months" blah blah blah.....

Good luck collecting your $845,000 from MF Global CNBC