Mark Grant On The Greek Annexation

Tyler Durden's picture

Submitted by Mark Grant, Author of the Financial Commentary: "Out of the Box"

"He also said that the European Commission, the EU's executive arm, would be installing its own officials at Greek ministries to provide technical assistance and monitoring on a permanent basis on the ground in Athens." 

This is a quote from the article attached. I think it can be now said that Greece has been annexed by Europe. There is a separate article today where Germany is going to send some of its tax collectors to Greece. As Germany is refusing to increase the funds for the ESM or the EFSF; the IMF is demanding it as a precondition of additional aid. The G-20 meeting appears not to provide any further funds for Europe until Europe has provided more themselves. It is getting down to a "shut-up or put-up" moment for Germany as there is obvious serious dissension in the German Parliament on the next round of the Greek bailout package and also difficulties in the Parliaments of Finland and the Netherlands. 

My advice is to put all of the headlines aside because they are not accurate. No deal has actually been struck and there is just the possibility of one at present. The PSI is also nowhere near certain. There has certainly been a proposal made with innumerable and probably impossible conditions to be met by Greece including a demand for a Constitutional change, which under the current Constitution, cannot even be voted on until 2013. I often wonder if Europe really wants to bail Greece out or if Germany is not forcing so many conditions that they are trying to have them exit the Euro on their own so the Germans are not seen as the Lord High Executioner; to quote Mr. Gilbert & Sullivan.  

[ZH: close - Germany is likely hoping that Greek creditors holdouts, as discussed here a month ago, will block the PSI transaction, and as a result push Greece into insolvency. This would achieve the German goal, and further shift the blame on "evil speculative hedge funds" (we can already see the Nancy Pelosi statement), who however will receive assurances from the proper channels that nothing bad will befall them even as they are blasted in public.]

The debt payment of March 20 looms for Greece while the IMF now says they will not discuss their part of the Greek loan until March 13. If the IMF only funds $17.4Bn as suggested by the German Finance Minister then the Eurozone will have to come up with even more money which no nation in Europe has yet approved. At then end it is going to get quite messy in my opinion with so many forces converging at the March 20 juxtaposition. You may hold what opinion you like about all of this but I urge caution and some additional cash on your table as this may not play out how anyone expects it.

"Very few beings really seek knowledge in this world. Mortal or immortal, few really ask. On the contrary, they try to wring from the unknown the answers they have already shaped in their own minds -- justifications, confirmations, forms of consolation without which they can't go on. To really ask is to open the door to the whirlwind. The answer may annihilate the question and the questioner."

                       -Anne Rice 



Global Finance: EU's Rehn: G-20 Must Provide Roadmap For Extra IMF Contributions
2012-02-25 18:06:48.508 GMT

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EscapeKey's picture

Well, that's just awesome. That means we can rally another 1,000 points on "Greek debt hopes". And that's for bailout 2 alone!

Ahmeexnal's picture

More recently, it has been argued (for instance by historian Gerhard Weinberg in his book "A World At Arms"[43]) that the Versailles treaty was in fact quite advantageous to Germany. The Bismarckian Reich was maintained as a political unit instead of being broken up, and Germany largely escaped post-war military occupation (in contrast to the situation following World War II.) In a 1995 essay, Weinberg noted that with the disappearance of Austria-Hungary and with Russia withdrawn from Europe, that Germany was now the dominant power in Eastern Europe.[44] Weinberg wrote that given that a mere 21 years after Versailles, Germany had conquered more land than she had in 1914, it is very questionable whatever Versailles was as anything harsh and crippling as Germans at the time and since claimed it was.[45] Writing in 1995, Weinberg further added against the idea that territorial losses Germany suffered in 1919 brought about the Third Reich in 1933, commenting if that was the case, then the even greater territorial losses Germany suffered after 1945 should have brought about a Fourth Reich.[45] Weinberg sarcastically commented that those who claimed that territorial losses Germany suffered in 1919 caused National Socialism have never explained why — the even greater territorial losses Germany suffered in 1945 did not bring about a return of the Nazis, as logic would dictate if it were true.


Well, Mr. Weinberg, guess what? The fourth reich does exist. It's called the european union. But you are right on one thing. The Nazis did not return. Fact is, they never left.

PhilB's picture

I dont get all this HYPE about the PSI not being a DONE DEAL. THE BOND SWAP IS A DONE DEAL.

There has been NO CHANGE to the Greek governed bonds MINIMUM CRITERIA of 66% to trigger the CACs. This is clearly stated in the Memorandum on Friday, despite what ZH and others are saying.

This deal looks done because we need 66% of Greek law bonds to trigger the CACs. In order for the bond swap to go bust we would need 58 Billioon Euros on Notional of local Greek bonds to block. This seems very unlikely given that the Greek Banks own the majority of Greek bonds and they are held locally. SO Mark Grant is just ranting about nothing. PSI is DONE and this crap about Germany "wishing" for PSI not to go through is just that, crap. Whatever dangers befall Greece in the near term..the PSI bond swap is not one of them.

Once the 66% of local bonds approve of the swap, due to the CACs this will be counted as 100% of the 177B bonds. Meaning it is impossible for the foreign Greek bond holders to block the deal. And it would take more than 70% of the foreign law bond holders to even threaten a 90% participation rate.

So DEAL IS DONE...and ZH and Mark Grant's conclusions are wrong, I welcome your thoughts.

falun bong's picture

Agree, it's "fixed", the Eurocrats have finally figured out a way to trade trash for cash so the problem is solved and the firewall will "work". Just sweep it all under the rug like Uncle Ben does with 90+% of 10 and 20-yr Treasury issuance. There's an end game there but it's not here yet, sterilization of course will be mathematically impossible.

The fly in the ointment is energy. CBs have fewer options to print "growth" because oil is inflating fast. There's a classic flaw in the system: we allow pure speculation (not just hedging) in the lifeblood of the civilization. Kind of like we have the same reserve currency and terms of trade currency, a fundamental structural flaw.

What to do? Maybe a barbell trade, 50% in AAPL, 50% in gold/silver/oil/farmland.

CrashisOptimistic's picture

I think you're wrong.

The issue is not the Greek law bonds.  It is the English law bonds.  The CACs on the Greek law bonds allow the majority rule to impose on all of them, but that does not bind the English law bonds.

The English law bonds have that language in them.  Think about what you're suggesting here.  You're not telling the English law bondholders to endure a haircut, because that would trigger credit default swaps as a loss of principal.  You're instead ordering them to lend money to a borrower they may not want to lend to.

You are ordering the Greek bondholders to do that and they must if the majority of that class of bond (66% of them) says yes.  The English law bonds, however, are a different class of bond.  As blocking securities, they are not bound by the Greek law CACs.  Those CACs didn't exist in the English law pieces of paper . . . the English law bond instruments . . . the hedge funds hold.  Those clauses cannot now be imposed after the signature, so to speak.  You can't change the wording of the contract after it is agreed to if such a change forces a loss of principal, which of course it does.  Rather, you can do that, but you trigger the credit default swaps when you do.

So you're right in the context of the Greek law bonds.  Most Greek banks holding Greek government bonds have agreed to the haircut and that prevents any non agreeing Greek banks from declaring default.  But this is not binding on the other class of bond.  There is some question, and maybe it's not really a question . . . if the English Law bondholders declare default, that MIGHT extend to all bonds, including the Greek bank held ones.  That would be ugly for triggering CDS.

My personal belief is a much more radical approach can be followed, if the swaps continue to be feared.  Counterparties can refuse payment for a swap and any lawsuits filed . . . the legislatures can inform the courts that any such proceedings for those lawsuits are defunded.  The court system is not going to be funded to hear those suits.

So the credit default swaps can be rendered powerless.  I think it is a bad thing that this PSI arrangement is being called a "bond swap" because there is confusion potential with the credit default swaps, which at the end of it all are the real issue.  The CDS and the bond swap is not the same thing.

Last point, the "sweetener".  One presumes that the blocking stake held by the English law bond holders has already been identified as having to be bought off.  That's what the sweetener is.  These people bought the blocking stake at 28 cents on a 1 dollar par and they will demand 1 dollar and hell, maybe more.  They can demand all they want.  They have enormous leverage as a blocking stake holder.  Anyway, I suspect that is what the 25 billion Euros that arose last week as a "sweetener" in various discussions happens to be.  The hedge funds are going to score big, because if they aren't paid off, they can stop it all by triggering swaps.

PhilB's picture

As far as I understand it, using the CACs will trigger the CDS no matter what. My view is that this deal cannot be done without using CACs. But once the CACs are used, the swap WILL go through. There can always be holdouts, but the English Law bonds are only some 20B Euros of Bonds (around 10% of the existing bonds). So even if ALL the english law bondholders refused the Swap will go through. What happens to the holdouts is another story. They may be paid in full or they may be outright defaulted on (since CDS will be triggered anyway cause of CACs), or the law may provide forr CACs to trigger (i believe under Enlgish law they require 75% of bond holders). The question would be how that law works, does it include Greek law bonds or only English law bonds, and would it be buy series or not? But either way the Swap goes through..there is NO RISK of the PSI not going through.

My point is that the Enlgish law bonds cannot block the swap (to do that you need 25% of total greek bonds, which they only represent 10%).

Thats how  I see it, unless someone had some other thoughts on this.

CrashisOptimistic's picture

Aha.  Different perspective.

The focus of most analyses has been on avoiding credit default swap trigger.  Not on simply forcing the Greek banks to exchange present worthless bonds for even more worthless longer term bonds.  It's the CDS that are the source of contagion.

But, stepping past that to your perspective, yes -- I think most agree with you.  The Greeks can force the Greek bank held Greek law bonds to do the exchange and do it "voluntarily" (for fear of loss of business license).  That forces through the PSI.

The holdouts however can cause even more difficulty than we've discussed (swap trigger).  If there is to be a sweetener, then the Greek banks could get upset.  "Why are they getting a X4 profit and we are getting butchered?  We are changing our minds.  We refuse."  That sort of thing.

I guess the way it plays is Greece doesn't care if the EU pays off the hedgies.  It's not their money; it's the Germans' money.  If the hedgies are fully paid off, that in effect is Germany directly redeeming the 20 something billion Euros of Greek debt.  Germany would not be just lending Greece money in a bridge loan.  They are gifting 20 billion.

Might be a much harder sell in the German Parliament.


chindit13's picture

It's all confusing, but if I understand this correctly, all bonds issued under UK Law since February 2003 have had CAC provisions, ranging from 75% (after 2004) participation down to only 66% (Feb 2003-2004).  The bonds issued under Greek Law had no CACs as part of their original issuance, but CACs now are being retroactively applied (meaning the rules can be changed as needed).  I do not know the make-up of the 20 March maturity, that is, what % is UK Law and what % Greek Law, nor do I know if the combined UK-Greek issuances are viewed as a single issuance or two separate issuances, meaning that one could be blocked.  Total Greek debt issued under UK Law is between 25-40 billion euros.

There was an interview (on al Jazeera today) with a HF holder of the 20 March maturity (Greek Law variety) who said he believes he will be forced to accept the provisions of the "deal" via these newly created "crammed down" CACs.  He guesstimated that 50% of the issuance is held by banks, and that most all will accept the deal.  He did not think there exists a 34% blocking share.  He also was of the opinion that the 130 billion euros would tide Greece over "for a few years".

Whether or not the UK Law holders will be viewed as a separate class, or combined into the collective of Greek issuances is uncertain, though it has obvious negative implications (imagine a combined UK-Greek Law issuance, and then a crammed down CAC set at whatever level is necessary to reach the critical level of acceptance).

As for the CDSs, that is up to the EMEA of ISDA, most of whose members are major banks and IBs, though there are a few potential dissenters to a "non-event" ruling (Elliott, DE Shaw).  Total net notional Greek CDSs are down to about $3 billion, and gross notional somewhere between $150-160 billion.  Whether that gross notional contains a one-sided AIG-type is unknown, though probably not unknown to the EMEA.

One would think that all these retroactive changes and highly subjective rulings would affect sovereign debt participation, but the aforementioned al Jazeera interview makes me reconsider what is seemingly obvious.  That particular HF manager (Patrick Armstrong), who held a long Greek Law debt position vs. a short European bank position, also holds Italian debt (bought in the mid 7% and now representing a 20% three month gain), and was optimistic of both Italy and Spain's ability to weather this crisis and meet debt obligations.  In other words, he was both complacent and did not seem to care that legal contracts can be changed on a whim.

Finally, nobody knows how much Greek debt (and Portuguese) has been pledged as collateral, at what level, and if it is being forcibly marked-to-market by whomever accepted it as collateral and suddenly feels naked.  I suspect the next LTRO will come just in time and give an indication of who is holding---or has pledged---the old maid.

Michael's picture

I would be very careful with what the foreign invaders dine on for dinner during their stay in Greece.

Cup of Poison

Socrates' execution requires that he drink a cup of hemlock. Found in Europe and parts of Asia, hemlock is a poisonous herb that looks a great deal like parsley. You would not, however, want this "fool's-parsley" dressing the side of your dinner plate!

It is bad enough that Socrates is unjustly sentenced to death, but to carry out his own execution is a bit much! Indeed, for many of us, it would seem that he is committing suicide. Bear in mind, however, that a sense of honor meant something different in his day than it does in our own. It would have been unthinkable for Socrates to have been forced to consume the deadly brew or for him to go to his death like a coward, kicking and screaming.

Pharmaceutical Vials for Preparing Hemlock
Steven S. Tigner

Weinberg either doesn't know or turns a blind eye to the starvation and humiliation that Germany suffered as a result of Versaille.  You cannot subjugate a nation they way the Allies powers did to Germany and not expect some blowback. Add the destruction of the economy under the weimar republic and you have a recipe for payback.  The arrogance is to think that any western nation cannot devolve the way post weimar did. People forget that one of the largest rallies of Nazis (almost 100,000) happened in New Jersey just right before WWII.

What hasn't changed is german industriousness and thrift.  Thats now why germany holds the cards.





Nobody For President's picture

People forget that one of the largest rallies of Nazis (almost 100,000) happened in New Jersey just right before WWII.



MobBarley's picture


The land you inhabitate.


then the even greater territorial losses Germany suffered after 1945 should have brought about a Fourth Reich


Operation Paper Clip


Denver is so ALPS!


Unt zeh Plane is ready.


Kissinger...DOCTOR KIssinger...ov zee fourth REICHHHHHH

Like Dr Strangelove...the movie...was factual to tell you what you laughed at...learning to love zee bomb...

brought to you be Oppenheimer HEIMER OPEN ...unt.. EDWARD teller...

Zeh Bomb. BOOM! Zee superior German intellect...

German engineering...Zeh bomb...courtesty Madame Currie...Zat french lady that invented

the atomic bomb...

Zis is Herstory too!



ovigia's picture

indeed...but they left, and went to USofA

CIABS's picture

As they say, it's a good thing we won WW2 because otherwise we would have been ruled by people with names like Helms, Kissinger, Schultz, Rumsfeld, Schlesinger, Weinberger, and so on.

number cruncher's picture

That would be the most excuciatingly painful experience escapekey.. but is the market that dumb. Well.. yes. I am in touch with some large players in this market and I am astounded by their lack of foresight. ONe half of me is kicking myself for not being so ignorant and enjoying the currentorgy of profits...well really most are just getting back to break even. But what is surprising is Everyone seems to think that they will be able to get out in time to lock in their profits. There will be a sudden realisation in the market soon that all is not well..they have been duped and could easily see 30 to 50 percent of their profits evaporate when there are suddenly no buyers as everyone is taking their chips off the table.Meanwhile the complacency continues and more money goesvibto the market from the sidelines. Its going to be ugly when it falls.

lolmao500's picture

April 1941 : Germany invades Greece.
October 1944 : Germany leaves Greece.

February 2012 : Germany invades Greece.
???? : Germany leaves Greece.

Tsar Pointless's picture

"If at first you don't succeed, try, try again."

Or, as Curly said in a 'Three Stooges' episode, "If at first you don't suck seed, keep on sucking until you suck seed."

EscapeKey's picture

Last time the Germans invaded, the Greeks would suffer from hyperinflation.

valkir's picture

Dont know for you guys,but i am kind of addicted for Zerohedge.What we gonna do if/when/they close it?

Sorry for OT.

Hulk's picture

Oxycontin with a Vodka back ought to do nicely...

Gief Gold Plox's picture

I think you grossly overestimate the power of "they". "Closing" something on the net as you put it is, short of disabling the crew behind the site, next to impossible.

Ahmeexnal's picture

windows 8 comes with an internet kill switch.

mkhs's picture

That is why windows xp never dies.

earleflorida's picture

fatalist need not apply

oppression itself is stimulus for anarchy best left unabated

GeneMarchbanks's picture

Hedge funds aren't blameless, no one is blameless least of all Greek officials followed closely by Euro banks.

Hulk's picture

And all this hoop jumping for little ole Greece, the dominoes get much bigger from here...

Legolas's picture

That you don't see discussions on the bigger dominoes is possibly quite telling.  My gut tells me that March 2012 is going to be one for the record books (negatively) and there won't be any more blue pills available after that.

Yen Cross's picture

 I feel for the Greeks. Before you junk me just listen. Thank You.

   The greek economy was never anything more, (from the euro conception), than a GateWay to the Mediterranean. The Northern Europeans saw Greece as a destination, not a Participant in the E.U>. They speculated on tariffs from a LONG enriched SOCIAL SYSTEM from the North.

    I'm Not placing blame here. It takes two sides to complete a trade. We all know greece is in default. We all are watching the LTRO takeup ( Feb29). Wouldn't any sane person be short RISK? 

    Nope! I'm long risk. The exhale next week, will echo off the halls of what really matters.  Downside risk reward is worth ( slipping into)! I will not be Short Squeezed!


outofhere's picture

How 'bout this one...

"Some day, following the example of the United States of America there will be a

United States of Europe." - George Washington

Ghordius's picture

LOL - now we would need a British Subject screeching:

"George Washington was a traitor! He swore service to the King and betrayed his allegiance! Traitor to his word, his bond, his honour, his nation! Traitor!!!"

but behold, at this time they are all nursing their hangovers...

outofhere's picture

He was also a 33rd degree mason, according to history.

Atomizer's picture



Let’s feed the Global public a new, more paralyzing Greece crisis storyline. After the panic begins, we can begin financing our slated goals thru the efforts of this crisis.

fightthepower's picture

Fuck you Greek losers, since you are unwilling fight occupation, I hope you suffer and die.

Atomizer's picture

May I offer advice? Don't play the blame card or take sides & wish harm. Separation is the tool <they> use to stay off the limelight stage. Responsibility resides on the central planners who passed the laws on the serfs. If the Serfs didn't follow the laws created, then the Serfs would be criminalized for not following the law. \\


Do you get it?


fightthepower's picture

If every German that sets foot in Greece winds up with a bullet in his head, maybe the Germans will give up trying to colonize Greece. If every Greek politician whom sells out Greece is killed, if their families are killed and their houses are burned down perhaps Greece has a chance to be free, get it?

Otherwise suffer in slavery you pathetic Greek losers.

Atomizer's picture



Don't know where you reside and don't care. The global slavery market has never disappeared. It has just migrated into new underdeveloped countries and sold as new UN Humanitarian Goals for World Peace. 

Don't mind those pesky theater wars going on simultaneously.. You just stay focused on what is important by not forgetting to download your Apple app for tonight.


Canucklehead's picture

That's it? 

Kill everyone who won't propogate the Greek ponzi? 

Why not kill the Greeks that won't pay their taxes, or those Greeks who scam their social programs, or those Greeks who vote for unsustainable promises? 

If you did that, I think the Greek problem would be mitigated.


fiddy pence haff pound's picture

are you old enough to have been in a war?

nobody invaded your hometown, right?

YOu and the others talking about killing don't live

in a small country that's overrun by foreign powers.

Greece will survive without revolution, and without killing many people.

IF you want to see blood, go to Spain and Italy. They will not tolerate

being enslaved.

Greeks know how to play the waiting game, and they're not much in debt, personally.

In case you truly want to know why Greeks tend to cheat, it's because that country's

thieving government is corrupt.

Nachdenken's picture

The German Minister of the Interior suggests Greece exits the Eurozone.

This as foreseen since long ago and often thereafter on ZH.

We know the plot now, when will it end.

Dr Zaius's picture

Germany is not forcing so many conditions that they are trying to have them exit the Euro on their own so the Germans are not seen as the Lord High Executioner

Question: What is the big deal if Germany was seen as the Lord High Executioner of pushing Greeze out of the Euro zone?  Wouldn't such a move actually strengthen the Euro as a currency?  Of course, I guess I'm asking this from the perspective that the actual goal of the Euro is to create a strong currency for the European community.


Canucklehead's picture

You are correct.  Clearly, the Germans are saying if you want their leadership to right the wrongs of the current system, things have to change.  They are simply starting with Greece.  Portugal, Spain, Italy, France would be next.

If the others want to take the leadership role, they need to step up to the plate.

The simple point is that the smart money in the other EU economies are supportive of the German direction.

The centre of the EU is simply the re-incarnation of Lotharingia.

If you have some time, research Lotharingia.


flyonmywall's picture

The question is, how long can they paper things over, with a wink, a nod, and a handshake.

Sooner or later, actual money has to change hands. The question is, who among those in the know will win, and who will lose. It's already a foregone conclusion that the Greek serf population has already lost.

Somebody has paid real money (arguably) for CDS contracts, so that means somebody has to satisfy some kind of contract, and pay out real money. When that happens, in my opinion, some institution somewhere is going to have to cough up real cash. If they do not have it, it will trigger a cascade of crap coming down Olympus.

Sudden Debt's picture


MinnesotaMD's picture

That was my thought too, either they give over Greece by meeting insulting and difficult demands, or Germany is off the hook.

divedivedive's picture

I wish there were more potential solutions offered up here. 

I'm not a politician, economist, nor businessman but if I were in a position of power in Greece I would say - Hold on a minute. How much money do we owe you guys ? What is the principal ? Ok - we will do everything we can to pay down the principal. As of today we are going to nationalize some of our key industries. We are going to start with our shipping industry (which moves a little bit of oil around the globe for you guys). We are going to impose a temporary tariff on the use of our ships to help us get ourselves out of this jam. (Apparently there is quite a bit of precedence for a country to nationalize stuff when it sees fit - even the US).

As for the topic of this thread, I think it is great for the Germans (or any other successful group) to send advisors or mentors to Greece to offer advice and keep an eye out for their own interests. Perhaps some of those advisors would think outside the box and come up with some off the wall solutions which the Greeks might not think up on their own. I would hope that the Greeks would not have to pay for this advise (nor the mentoring).


WonderDawg's picture

That's quaint, that you think the Germans are sending "advisors or mentors" to Greece. I'll admit, I laughed when I read that, because I think you actually believe it. Germany isn't sending mentors, my friend. Those guys will be there to give orders and enforce them.

Mentors. Good stuff. Tastes like naive.