Here is the latest on the Greek collapse, straight from Reuters: "Greek banks have asked for access to the remaining part of a 28 billion euro state support package, highlighting pressure on the sector from the country's recession and spiralling borrowing costs." So take €17 billion in immediate liquidity needs and couple this with the outflow of deposits, which we have been pounding the table on since February: "Data also showed Greek bank deposits had fallen 8.4 billion euros, or 3.6 percent of the total, since December." Add to this the unsustainable yield (and at this point financial and corporate) curve which is indicative of endgame, and you have the reason why Athens realizes it is now in a full-blown liquidity crisis. The fact that the funding crisis has forced banks to resort to shoring up short-term liquidity in the form of immediate "financial crisis" assistance highlights just how serious the situation is. Indeed, as Reuters summarizes, "The banks' request for aid could help the lenders face possible liquidity problems in the short term but would not reverse a grim outlook."With all this to ponder, it is no surprise that the Bundesbank has just realized throwing money in a bottomless pit may not be the most prudent use of capital: the bank has suddenly gotten cold feet on the whole Greek bailout. In fact, events from the last few days have even gotten Goldman's always cheerful Erik Nielsen to say that things in Greece will likely get even worse.
More from Reuters:
About 17 billion euros ($22.7 billion), mainly in state guarantees, remain in the scheme launched in 2008 to help Greek banks deal with the global credit crisis.
"The banks have asked to use the remaining funds of the support plan ... They want to have additional safety, now that the economy and the banking system are under pressure," Finance Minister George Papaconstantinou told reporters.
Some of the aid would come in the form of Greek government bonds, which the banks could use as collateral for loans from the European Central Bank, which said last month it would continue accepting them even if Greece's credit rating was cut.
A banking source who wished not to be named said Greece's four largest banks -- National Bank of Greece, Eurobank, Alpha Bank, and Piraeus Bank -- had made the request to access the support package's remaining funds last week. A decision on the allocation could happen by the end of the week, the source said.
The banks have already made use of part of the plan's funding by issuing preferred shares to the state in exchange for capital injections. But the biggest part of the package, mainly state guarantees, was left unused.
This is rapidly becoming an M.C. Escher exercise: a bankrupt state guaranteeing bankrupt banks, who are using covered bonds courtesy of an ECB that has pledged more crap collateral than even the FRBNY. What a joke.
In the meantime, another Reuters story indicates that Bundesbank is getting close to pulling the Greek life-support.
Resistance towards the European Union's emergency plan to help Greece financially if it cannot raise funds on its own has surfaced at Germany's central bank, a newspaper reported on Wednesday.
In an advance copy of its Thursday edition, Frankfurter Rundschau said internal Bundesbank documents showed its board had worries that German money would have to be transferred to Greece directly if the plan is ever activated. Reached by telephone, the Bank confirmed the existence of the document, but said that it was not an official position as it had been prepared by a specialist only as a first reaction to the EU agreement.
"We have yet to come to an opinion about this," the spokesman said.
EU leaders agreed to the aid mechanism last month, saying Greece could be helped as a last resort through bilateral loans and money from the IMF if market financing becomes insufficient and if all euro zone states agree to it.
Earlier on Wednesday, a spokesman for the German Finance Ministry said the German government has confidence in the measures agreed to support debt-laden Greece, and that there was no change in the plan for aid as a last resort.
And the realization that the endgame is approaching is finally dawning on G-Pap. Reuters, for the Trifecta:
Greece does not expect the premium investors demand to buy Greek state bonds instead of German bunds -- now at a euro lifetime high -- to drop soon, the country's finance minister said on Wednesday. "We don't expect a fast, magic drop in spreads," Finance Minister George Papaconstantinou told Greek ANT1 TV. "It will take some time."
He added that the 2009 budget deficit would be 12.9 percent of gross domestic product, slightly above the government's previous 12.7 percent estimate.
Nothing like giving people the choice of bad news or really bad news.
In conclusion, here is Goldman's Erik Nielsen, whose persistent optimism over the past two months, is about to be shattered with a wrecking ball.
The UK’s MPC and the ECB both meet tomorrow as part of their regular monthly set-up. The MPC (announcement of decision at 12 noon) will be a non-event.
The ECB (announcement of decision at 12.45 London time) will also be a non-event, apart from the press conference at 13.30 (London time) which will be the venue for Trichet to explain their new collateral policy. The details of this could be immensely important for Greece and its banks.
Pressured by events, Trichet “pre-announced” at the European Parliament two weeks ago that the ECB will be modifying its collateral policy, and that he’ll be providing the details at the press conference tomorrow. He has already said that the present temporary increase of the threshold for losing eligibility for sovereign debt will be extended, and that they’ll change the present flat haircut structure for sovereign debt to a sliding scale. As I have argued for a long time (latest, see the FT on March 25, the change should address three things: (1) eliminate the possibility for a sovereign of losing eligibility; (2) introduce a sliding scale for haircuts; and (3) supplement the present dependency on the credit ratings agencies with an internal (but fully transparent) assessment of creditworthiness. From Trichet’s statement so far, it seems that they’ll address only the second point, and provide some breathing space on the first.
If so, this is not good enough, and it would significantly increase the risk for Greece and its banks, particularly following today’s announcement that the Greek banks have requested further help of up to EUR17bn from the government. Such help would almost certainly be provided in the form the handing over of government securities to the banks, which can then repo them with the ECB. However, if the ECB is now increasing the haircut on such securities, while not removing (just reducing some) the risk of them one day refusing to accept Greek sovereign bonds as collateral all together, it all comes down to how the market evaluates this lower risk of total disaster (i.e. loss of eligibility.) As I have argued before, for me, this was never a real risk to begin with, so net net, this is bad for Greece because of the sliding scale. This might just be one of the most important communications by the ECB in its short existence.
When everyone else refuses to repo Greek collateral, who but Jean-Claude Trichet to do a Bernanke redux and put all of the EU's money at risk to bail out a country. Lehman 2.0 is now here... And we all remember how Lehman 1.0 ended.