Schauble Says Europe Can Handle Greek Exit As EFSF, Fitch Warn Of "Catastrophe", Mass Downgrades

Tyler Durden's picture




 

Oh yeah..... Greece.

As already pointed out, first we had Fitch and then various European ladies and gentlemen, all lining up one after another, to talk down the event that as recently as 4 months ago would presage the apocalypse of Europe: i.e., Grexit, or the country's exit from the Eurozone. And now that a second Greek elections is inevitable (as we expected a week ago), and with Syriza likely to surpass 30% of the vote alone in the next two weeks, all hope appears to be lost for preserving Greece in the EMU. Europe's reaction? Why talk it down of course.

From Bloomberg:

German Finance Minister Wolfgang Schaeuble suggested the euro area could handle Greece dropping out, raising pressure on Greek political leaders struggling to form a government amid a rise in anti-bailout sentiment.

 

“We have learned a lot in the last two years and built in protective mechanisms,” Schaeuble told the Rheinische Post newspaper in an interview published today, when asked whether the euro area is girded for a Greek exit. His comments were confirmed by the Finance Ministry in Berlin.

 

The risks of contagion for other countries of the euro zone have been reduced and the euro zone as a whole has become more resistant,” Schaeuble said. “The notion that we wouldn’t be able to react in a short time to something unforeseen is wrong.”

 

“The future of Greece in the euro zone now lies in Greece’s hands,” German Foreign Minister Guido Westerwelle said in a speech in the lower house of parliament in Berlin today. “Solidarity is not a one-way street” and aid to Greece can only be disbursed if Greece sticks to its part of the deal.

 

“We have to tell our Greek friends and partners honestly, fairly and openly that there is no way other than the one we jointly agreed,” Schaeuble said. Other European governments and private investors have gone “extraordinarily far” in making concessions, so Greece “has to understand that must fulfill its commitments in return.”

But, but...

A Greek exit from the euro zone would be catastrophic not just for Greece, the head of the euro zone's temporary rescue fund said on Monday, a day after pro-bailout ruling parties lost their majority in parliament in Athens.

 

If Greece exited the euro zone that would "of course have a huge impact not just for other program countries, not just for the banks, but also for Greece itself," Regling said, adding Greece's public creditors would also suffer. "It would be a catastrophe for Greece."

 

Regling also said it was completely out of the question that the European Stability Mechanism (ESM) would directly recapitalize banks, a proposal by some policymakers to help Spanish banks.

We are confused: Greek exit - good or bad? Or should we just wait for the post-fact CNBC spin. In the meantime, just out from Fitch, the stakes get raised:

Fitch Likely to Put Member States on Rwn If Greece Leaves Emu

 

The inconclusive outcome of Greece's May 6 parliamentary elections and the subsequent failure to form a coalition government make fresh elections in June probable. The election or formation of a Greek government unwilling or unable to abide by the terms of the current EU-IMF programme would increase the risk of Greece leaving the eurozone. If they are required, the re-run elections will therefore be a critical event for both Greece and for the eurozone.

 

The implications for the eurozone of a Greek exit are highly uncertain and would depend on how it happens and the European policy response.

 

In the event of Greece leaving EMU, either as a result of the current political crisis or at a later date as the economy fails to stabilise, Fitch would likely place the sovereign ratings of all the remaining euro area member states on Rating Watch Negative (RWN) as it re-assessed the systemic and country-specific implications of a Greek exit.

 

This would be in line with the approach set out in Fitch's report, 'The Future of the Eurozone: Alternative Scenarios". In the report, published 3 May, we said that if Greece left the eurozone, the ratings of those sovereigns currently on Negative Outlook - Cyprus, France, Ireland, Italy, Portugal, Spain, Slovenia and Belgium - would be at most immediate risk of a downgrade. The probability and magnitude of this would largely depend on the European policy response and its success in limiting contagion, as well as outlining a credible vision of a reformed EMU. Nonetheless, the sovereign ratings of all eurozone member states would potentially be at risk.

 

A Greek exit would break a fundamental tenet underpinning the euro - that membership of EMU is irrevocable. In a benign scenario, the spill-over and contagion to the rest of the eurozone could be less profound than feared and possibly provide the catalyst for greater fiscal and political integration that would strengthen the viability of Economic and Monetary Union.

 

The May 6 vote in Greece saw a rise in support for explicitly anti-austerity (although not necessarily anti-euro membership) parties, such as the left-wing Syriza, which rejects the terms of Greece's EU-IMF programme. This came at the expense of the incumbent Pasok-New Democracy coalition, which fell two seats short of a parliamentary majority.

 

The outcome of re-run general election is unpredictable as the choice facing the Greek electorate is between parties that would implement highly unpopular fiscal austerity and structural reforms, and those political forces that reject the EU-IMF programme and would put at risk Greece's membership of the eurozone. The May 6 poll and probable need for a second election have underlined the growing political risks to the successful implementation of the EU-IMF programme and financial support for Greece.

 

In the near-term, new elections in June would make it doubtful that Greece could comply with the EU-IMF's end-June deadline to propose further medium-term austerity measures worth 5.5% of GDP, although we would expect Greece to be granted an extension to that deadline. However, we think any attempt by Greece to significantly renegotiate its agreed consolidation and reform programme (to which both Pasok and New Democracy are committed) would be unacceptable to the Troika of the ECB, Eurogroup and IMF, who appear unwilling to countenance a significant easing of the programme or any increase in funding.

 

Greece's Long-Term foreign currency and local currency Issuer Default Ratings were moved to 'B-'/Stable from 'RD' on 13 March 2012 following the completion of the distressed debt exchange that facilitated the provision of the country's new EU-IMF programme.

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Fri, 05/11/2012 - 09:40 | 2416983 chunga
chunga's picture

I'd fight Cramer

Fri, 05/11/2012 - 09:48 | 2417014 Village Smithy
Village Smithy's picture

Boo Yaa to that!

Fri, 05/11/2012 - 09:52 | 2417030 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Europe is fine!

Fri, 05/11/2012 - 09:58 | 2417061 SilverTree
SilverTree's picture

"Fine" is a relative term.

Fri, 05/11/2012 - 10:45 | 2417336 Leraconteur
Leraconteur's picture

Ground to a fine powder.

Fri, 05/11/2012 - 11:16 | 2417468 Possible Impact
Possible Impact's picture

Ground so fine the Angst is measured in Angstroms!

 

Fri, 05/11/2012 - 11:28 | 2417503 lineskis
lineskis's picture

Funny to see how the impossible a few short months ago is now possible, how what was supposed to be the end of the world is now OK and contained... yet again...

Fri, 05/11/2012 - 13:25 | 2417932 markmotive
markmotive's picture

Where did Fitch say "catastrophe"? I can't seem to find it.

Fri, 05/11/2012 - 10:13 | 2417149 walküre
walküre's picture

If Greek exits the Euro, they will compete with Italy and Spain. Soft Drachmas vs. hard Euros.

Greece will be fine. Italy and Spain won't like it and start considering their own exit strategies.

Once Greece goes, more will follow and the Eurozone and quite possibly the EU is finished. It would put alot of EU bureaucrats on the street and Brussels and Strasbourg would become ghost towns.

Perfect. I'd move to Europe when that happens.

Fri, 05/11/2012 - 09:57 | 2417060 RyanW525
RyanW525's picture

Doesn't Europe belong to his charitable trust??

Fri, 05/11/2012 - 11:20 | 2417483 Harvey Lee Oswald
Harvey Lee Oswald's picture

No sense in trying to preserve your honor in this situation.

Just shoot the bastard; we all know bankers don't play fair.

Fri, 05/11/2012 - 09:45 | 2416984 LawsofPhysics
LawsofPhysics's picture

Downgrade every financial firm on the entire fucking planet, who is your "cleanest dirty shirt?" - Oh yeah, bitchez.

< sarc on > Boy, Buffet's comment to "avoid cash" really makes sense now. < sarc off >

Fri, 05/11/2012 - 09:54 | 2417040 SilverTree
SilverTree's picture

"A Basket of downgrades"

Fri, 05/11/2012 - 10:06 | 2417090 CPL
CPL's picture

I went to my mother's house with a basket of:

 

A)  Cookies

B)  Bread

C)  Eggs

D)  Downgrades

 

 

 

Fri, 05/11/2012 - 10:14 | 2417162 Apeman
Apeman's picture

mmmmmmmm... downgrapes

Fri, 05/11/2012 - 10:22 | 2417184 jez
jez's picture

You put all those eggs in one basket? You're not that Bruno Iksil guy, are you?

Fri, 05/11/2012 - 10:14 | 2417164 tekhneek
tekhneek's picture

"Hi I'm Warren Buffet and I just shit my diaper."

Fri, 05/11/2012 - 09:42 | 2416985 RyanW525
RyanW525's picture

Hahaha....Europe is waving its hands in the air, shouting  "guys over here...remember me!?"

Fri, 05/11/2012 - 09:48 | 2417018 Aductor
Aductor's picture

Well, it isn't working. Traders in the United States of Hopium BTFD as usual.

Fri, 05/11/2012 - 10:06 | 2417081 HarryM
HarryM's picture

No surprise - I said last night that there will be a full scale coordinated effort today to calm the market- if they didn't - there would have been a +200 meltdown.

The money JPM lost is a pimple compared what is being spent to contain this shitstorm.

Fri, 05/11/2012 - 12:27 | 2417716 mick_richfield
mick_richfield's picture

They're not waving, they're drowning.

Fri, 05/11/2012 - 09:42 | 2416989 Caviar Emptor
Caviar Emptor's picture

I am warning of a giddy period of drunken denial followed by a nuclear winter

Fri, 05/11/2012 - 09:42 | 2416990 the not so migh...
the not so mighty maximiza's picture

Once Greece leaves others will follow.

Fri, 05/11/2012 - 09:45 | 2417005 mayhem_korner
mayhem_korner's picture

 

 

"leaves" means defaults, right?

Fri, 05/11/2012 - 09:48 | 2417012 the not so migh...
the not so mighty maximiza's picture

Yeap.

Fri, 05/11/2012 - 10:06 | 2417104 Watson
Watson's picture

But not all.

For example, Germany has put the pieces in place to abandon the EUR and go back to the DEM, but I'm sure they will pay their EUR debt.

Shame so few others will...

Fri, 05/11/2012 - 10:18 | 2417181 walküre
walküre's picture

I pray they will all agree mutually NOT to pay any EUR debts. The aftermath will be desastrous enough. Unfortunately, the Germans might just take all the debt on them and we would see a repeat of Versailles, Weimar etc.

Fri, 05/11/2012 - 11:21 | 2417488 ghenny
ghenny's picture

Just think of it as their last installment payment for WW II

 

Fri, 05/11/2012 - 13:39 | 2417995 Mountainview
Mountainview's picture

No--it means Drachma for EURO...nice !!!!

Fri, 05/11/2012 - 11:16 | 2417467 odatruf
odatruf's picture

So here's my question: I have a small amount of money in a Greek bank (like 10,000 USD or 7,700 Euros).  Not a huge amount and it's only there to cover expenses for a small piece of island propery. Most of the time, there isn't a draw on it so I could manage not having it in country.

I've been thinking about moving it out of Greece and into, say Italy, or somewhere else.  It's lost value relative to the dollar, but not a huge amount and I put it in the account long enough ago that it doesn't really matter, but I have been so nickled and dimed by local and national government over this property that if I could gain some of that back, I'd like to - or at the very least not face more account erosion if the banks locked for a few days if they left the Euro and then end up with a bucket of worthless drachmas or whatever their new money would be called if I could just as easily move it and then move it back later at a great new exchange rate. 

Would you all:

  1. move the money to another Euro country now
  2. move it to another Euro country now
  3. do either at a later point
  4. leave it where it is assuming that however it ends up, the in country value will stay roughly the same
  5. return it back to the US

All else being equal, I'd assume leave it all as it is.  But if action might save/make more than 1,000 USD I'd overcome that preference.

Thanks in advance for any guidance.

Fri, 05/11/2012 - 11:39 | 2417565 falak pema
falak pema's picture

buy yourself a good feast and invite all those poor greeks; you'll be a God to them, even if your pocket's empty and your problem solved. Remember Zorba!

Fri, 05/11/2012 - 11:53 | 2417595 GeneMarchbanks
GeneMarchbanks's picture

I second that motion. Do as falak says, or CHF it.

Fri, 05/11/2012 - 12:50 | 2417808 odatruf
odatruf's picture

I had to look that up.  I though about Swiss Francs.  Does anyone know if I'd have to go do that in person?

Not that I hate the idea of going to Greece sometime soon and in fact, that's one motivating factor in all of this.  If I do it and I save myself a thousand or two, in effect the trip costs me nothing.

 

Fri, 05/11/2012 - 13:04 | 2417864 chubbar
Fri, 05/11/2012 - 13:16 | 2417909 odatruf
odatruf's picture

Converting that cash into gold or silver isn't a good option.  I need to keep it pretty liquid so that if I need to put some bucks into the property, I can. And if the account is moved out of country, I need to be able to do that electronically from the US. 

Plus, I have a small bit of metals here in the US.  Again, not a lot, but some anyway.

Fri, 05/11/2012 - 14:56 | 2418201 Mountainview
Mountainview's picture

Better take banknotes (but not those with a Y before the serial number... those are Greek and will be converted in new Drachmas) and put them under your matress! Wait a few week or month!

Fri, 05/11/2012 - 12:32 | 2417740 mick_richfield
mick_richfield's picture

Buy silver with it, and store it with someone you trust in-country.

Fri, 05/11/2012 - 09:42 | 2416991 agent default
agent default's picture

And why won't the rest of the PIIGS follow down that path in six months time?  The EU is toast, plain and simple.

Fri, 05/11/2012 - 10:37 | 2417286 DeadFred
DeadFred's picture

They've done a good job of desuading the other piigs. If you knew that exiting would lead you through the rubble of Athens (circa late 2012) you would want to stay in the union. Expect them to do whatever they can to minimize the distress to the rest of the EU but maximize the carnage to Greece pour l'encouragement des autres

Fri, 05/11/2012 - 09:43 | 2416992 youngman
youngman's picture

Kind of an unreal day....oh yeah....Greece..JPM...Spain...Econ reports..and its early...

Fri, 05/11/2012 - 09:51 | 2417026 j.tennquist
j.tennquist's picture

Indeed, the more real things get, the more unreal they seem.

Fri, 05/11/2012 - 09:57 | 2417057 t_kAyk
t_kAyk's picture

The more things change, the more they stay the same. 

 

bitcheZ...

Fri, 05/11/2012 - 09:50 | 2417027 a growing concern
a growing concern's picture

Makes you wonder what turd they've got queued up for 4:01 PM.

Fri, 05/11/2012 - 09:42 | 2416993 mayhem_korner
mayhem_korner's picture

We are confused: Greek exit - good or bad?

 

It's like the Vegas line on a football game - it depends on how much money has been bet on each side.

Fri, 05/11/2012 - 09:43 | 2416995 Caviar Emptor
Caviar Emptor's picture


Merkel meets with European Investment Bank head

 

  • Discussed methods for boosting European growth

Vee haf vays of boosting zee growth…

Fri, 05/11/2012 - 10:00 | 2417063 LongBalls
LongBalls's picture

Germany will accept inflation soon.

Fri, 05/11/2012 - 10:06 | 2417078 hedgeless_horseman
hedgeless_horseman's picture

 

 

Discussed methods for boosting European growth...

...nominally. 

It would be ironisch if the meeting was held in Heidelberg.

Fri, 05/11/2012 - 10:18 | 2417192 walküre
walküre's picture

She's meeting with them to engage in the preliminary but not so tentative discussions on HAIR CUTS.

Fri, 05/11/2012 - 11:37 | 2417553 falak pema
falak pema's picture

long preliminaries could have unexpected effects for the frau on austerity diet.

Fri, 05/11/2012 - 09:43 | 2416997 kridkrid
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Would you like to play a game?

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