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Spiegel Interviews Tsipras: "If Greece Is Destroyed, It Would Be Merkel's Fault"

The person who has caused global stock markets so much consternation by daring to play chicken with Germany until the bitter end conducts a  no holds barred interview with Germany's Spiegel. There is little love lost between the Syriza leader and the Germans, who were quite surprised to find a political leader who is willing to play blink with Germany, with the ECB, and the developed world until the very end, or June 17, whichever comes sooner. Tsipras' bottom line: "We're trying to convince our European partners that it's also in their interest to finally lift the austerity diktat." Alas, the European "partners", as evidenced by Lagarde's Guardian interview this weekend, have an image of Greece as a bunch of lazy tax evaders, who only seek to mooch on the German teat, resulting in 60% of Germans now pushing for Greece to be kicked out of the Euro, consequences be damned. Nothing new there. What is curious is Tsipras' answer to the question everyone wants to ask: "If Greece ultimately exits the euro, you will also bear some of the blame. You promised your voters the impossible: retaining the euro while breaking Greece's agreements with the rest of Europe. How can such a plan find success?" His response: " I don't see any contradiction in that. We simply don't want the money of European citizens to vanish into a bottomless pit...we think these resources should also be put to sensible use: for investments that can also generate prosperity. Only then will we in fact be able to pay back our debts." Yet the line that will draw the most ire out of the already exhausted German taxpaying public is the following:

"if our economic foundation is completely destroyed and the decisions of an elected Greek government are not responsible for it but, rather, certain political forces in Europe. Then they too will be guilty, for example Angela Merkel."

Well, in the US, it is all Bush's fault; in Greece, it appears to be Merkel's.

Frontrunning: May 28

  • Merkel Prepares to Strike Back Against Hollande (Spiegel)
  • China to subsidise vehicle buyers in rural areas (Reuters) - what could possibly go wrong
  • Bankia’s Writedowns Cast Doubts on Spain’s Bank Estimates (Bloomberg) - unpossible, they never lie
  • Shares in Spain's Bankia plunge on bailout plan (AP) - oh so that's what happens when a bank is bailed out.
  • SNB’s Jordan Says Capital Controls Among Possible Moves (Bloomberg)
  • Greeks Furious Over Harsh Words from IMF and Germany (Spiegel)
  • Tehran defiant on nuclear programme (FT)
  • Finally they are getting it: Greece needs to go to the brink (Breaking Views) - of course, Citi said it a week ago, but it is the MSM...
  • OTC derivatives frontloading raises stability concerns (IFRE)
  • Wall Street Titans Outearned by Media Czars (Bloomberg)

Complete European Calendar Of Events: May - July

There are still 3 weeks until the next so very critical Greek elections (which if we are correct, will have an outcome comparable to the first, and not result in the formation of a new government absent Diebold opening a Santorini office), meaning the power vacuum at the very top in Europe will persist, and while the market demands some clarity about something, anything, nothing is likely to be implemented by a Germany which is (rightfully, as unlike the US, Europe does not have the benefit of $16 trillion in inflation buffering shadow banking) concerned by runaway inflation if and when the global central banks announce the next latest and greatest global bailout, which this time will likely by in the $3-5 trillion ballpark. However, none of this will happen before the market plummets as Citi explained last weekend, and Europe has no choice but to act. Luckily, as the events calendar below from Deutsche Bank shows through the end of July there are more than enough events which can go horribly wrong, which ironically, is precisely what the market bulls need to happen for the central-planning regime to once be given the carte blanche to do what it usually does, and believe it can outsmart simple laws of Thermodynamics, regression to the mean, and all those other things central bankers believe they can simply overrule.

Europe Is Fighting the Wrong Battles Again

Europe continues to fight the wrong battle, and continues to spread contagion risk. It is clear that Greece has had a solvency issue now for over 2 years.  The ECB and Troika chose to treat it as a liquidity problem.  Maybe, they could have argued that in early 2010, but by the summer of 2011 it was obvious to any credit observer that the problem was solvency, yet they continued to treat it as one of liquidity.  That is scary because if they fail to see the problem correctly now, they will fail miserably.  Not only is the problem clearly solvency, but now forced currency conversion has been added to the mix. Any "solution" from the EU must now address that risk, and it is not the same as solvency.  Programs that can protect against solvency may do nothing for the redenomination risk. We keep playing with scenarios and find it hard to find out where a Greek exit doesn't result in a steep sharp decline in the market.  We could go through more ideas of ECB intervention, but in the end most will have flaws.  Dealing with currency conversion risk is huge.  Dealing with the contagion risk that has been created by the EFSF is huge. Will Europe force Greece out thinking they have a plan; that fails miserably and sparks the miserable series of consequences we’ve outlined?  Sadly, yes.

About That European Stress Test, 2011 Edition... And Where The Pain In Spain Is Raining Next

Back when Dexia was nationalized in the fall of 2011, one of the running jokes was that it was the bank that had one of the highest grades in the European Stress Test conducted just months prior. Here is another joke: we now know that Spain's Bankia is the next major financial institution which is being nationalized, and whose bailout costs are literally growing by the hour. Was Bankia one of the Stress Test 2011 failures? Why of course not...  But 5 other Spanish banks were.

Four Euro Divorces But No Funeral (Yet)

"We think the ramifications of a Greek exit are more serious than the market anticipates", is how Morgan Stanley starts their European strategy report this week. They have raised their probability of a Euro break-up to 35% but the most likely outcome they foresee is a Euro divorce with Greece's exit preceded by strong contagion via three main transmission channels: the sovereign, the banking sector, and the political situation. Italy, Spain, Ireland, and Portugal are unsurprisingly the most at risk of material contagion and they recommend investors stay positioned defensively across risky assets as we remain in the 'Crisis' stage of the so-called C.R.I.C. cycle - and they note that unlike so many knife-catching US equity and Italian bond buyers, it is not sensible to try to pre-empt the Response phase of C.R.I.C. cycle. There appears to be four scenarios (and evolutions) for the future of Europe (from Renaissance to Divorce with Staggering On and an awkward 'Italian Marriage' in between) and we drill into the four additional possibilities under the divorce scenario for insight into the effects various risky asset classes will feel in each case.

A Tale Of Two Cities

Euro bonds “didn’t find much support” at the EU conference.
                              -Jean-Claude Juncker

“A majority of European Union leaders at a Brussels summit this week backed joint euro-area bonds.”
                             -Mario  Monti

Encapsulated in these two comments is the problem that Europe is now facing. Two views, two radically different positions and no agreement on a middle ground because there is not one. Of course the periphery countries, the weaker nations want Eurobonds because it would dramatically drop their cost of funding. Of course Germany and their stronger EU countries do not want it because it would dramatically raise their cost of funding. Nations, in the end, will act in their own self-interest, this has been proven more than enough times in history, which is why I stand by my conclusion that Eurobonds will not be forthcoming regardless of the polite rhetoric attached to them.

Guest Post: Things That Are More Important Than Facebook

The story of Facebook’s disappointing IPO is a gripping tale, and it holds some valuable lessons. But it concerns an event that has already happened. Forget Facebook — there are far more interesting events in play and that will affect you, if only at the margins. They haven’t happened yet, and they may not happen at all. But if they do, you’d sure as hell better have a plan.

Welcome To Chez Central Planner: Presenting The Complete Fed/ECB Response Menu

We will start with an appetizer of Liquidity Tenders and Securities Market Program Bond Purchases, move on to a plate of Emergency Liquidity Assistance, sample a pre-entre of Pro-Growth measures and ECB Covered Bond purchases, dive into an entre of Fed Swap Lines, medium rare, with a side of Emergency Liquidity Assistance, and finally unwind with a desert plate of Firewalls. To close we will dream of tomorrow' menu which some say may feature the mythical Eurobonds and even the, gasp, legendary Europan Bank Deposit Guarantee... Please charge it all to the taxpayer, of course.

Sitting At The Edge Of The World

Whether it is the EU running to the G-20, nations in Asia, the IMF or Spain and Italy and their brethren calling for Eurobonds the distinction is easily made; you pay or you pay or you pay because I cannot. That is the cry in the wilderness as politely, very politely, quite politely everyone says, “No thank you.” The curtain is going down on the show and the normal pleas are being made to keep the spectacle in operation but the pocketbooks are closed and Germany and the rest are not going to bet the family farm when the final act draws nigh. The Elves in the boulders cackle and the “invisible people” move on and sigh as the ending of one more chapter is inscribed in the Book of Life.

New Greek Bonds Crash To All Time Lows As "Negative Pledge" Fears Emerge; The Portugal Case?

A quick look at the Fresh-Start Greek Government Bond (GGB2) complex shows that as of this morning it has tumbled to fresh all time lows across the curve, and now trades at a more than 50% loss to the March PSI conversion price. The reason for this dump is not so much on fear of a Greek exit, but once again a reflection of precisely what we expected would happen, and as explained in our January Subordination 101 post. Last week, the fact that a PSI hold out, holding English-law bonds managed to get par recovery while all the other lemmings have so far eaten a nearly 90% loss, has sparked a realization among all the other hold outs that since they have covenant protection, they should all demand the same treatment. And indeed, another one has stepped up, only this time not a holder demanding par maturity paydown, but one who has read their bond indenture and was delighted to find the words "negative pledge." As Bloomberg reports "a holder of Greek bonds that weren’t settled in the biggest-ever debt restructuring said he’ll demand immediate payment unless the government posts collateral against his investment. Rolf Koch, a private investor who says he holds 500,000 Swiss francs ($528,000) of the notes due in July 2013, argued that he’s entitled to equal treatment with Finland, which made getting collateral a condition of contributing to Greece’s second bailout. He wrote to the paying agent, Credit Suisse Group AG, invoking the bonds’ so-called negative-pledge clause, according to the text of a letter seen by Bloomberg News."

On Growing Tensions, Spreading Global Downturn And A Dead-End Greek Resolution

Just when one thought it was safe to come out of hiding from under the school desk after the latest nuclear bomb drill (because Europe once again plans on recycling the Euro bond gambit - just like it did in 2011 - so all shall be well), here comes David Rosenberg carrying the launch codes, and setting off the mushroom cloud.

Eurobonds - Nationalism Meets Federalism

Translating Germany's standard line on joiontly-backed European bonds is simple: "We don't want to pay" - it is as simple as that so you can ignore the rest of the rhetoric. France at the next EU summit is going to push for Eurobonds and Germany will resist in what may be a quite unpleasant stand-off. From Germany’s perspective we can easily understand their feelings about this matter because the consequences of Eurobonds are very negative for them. Eurobonds are quite clearly a “transfer union” where Germany is the primary source of funding then for the rest of Europe. If Eurobonds are ever enacted we would suggest selling any/all of the “AAA” countries and buying the periphery ones as the correct play in the intermediate term. In fact, Eurobonds are the crux where Federalism comes head to head with Nationalism and where the rhetoric gives way to actualization.