Something funny happened on the road to a Greek bailout: nothing. Well, a few exceptions: Germany and the ECB are now enemies, nobody knows what the hell the Maastricht rules really are, the ratings agencies are discredited beyond repair as even the ECB says its own internal bureaucrats can do a better job at modelling the Greek AAA rating... Yet Greek debt is still yielding 6%+. If anyone will recall, the primary concern that various administration George Pap[...]'s had, was that Greek debt was "unfairly" yielding double where German debt is. So yeah, lots of talk, more non-bailout bailouts, and in meantime, Greek default risk is pretty much where it was two months ago. Which is why speculation that emerged toward the end of last week that Greece will promptly issue new debt, is now being squashed by G-Pap (fin min or FM, not to be confused with the prime min or PM). In the end, it is all irrelevant: as Ambrose Evans-Pritchard says, the end is close for Greece.
The Telegraph reports:
Greek finance minister George Papaconstantinou said no decision had been taken, playing down earlier reports. While Greece can undoubtedly raise the money, the issue is the interest cost.
It gets funnier:
The government said the rise in spreads since the crisis erupted has eaten up savings from budget cuts.
Yields on 10-year Greek bonds were still 6.18pc on Friday, down 30 basis points from their peak but still double German rates. Short-term debt is cheaper but Athens risks a roll-over crisis in 2011 unless it stretches out debt maturities.
Greek banks have been key buyers of state debt this year, using it as collateral for cheap loans from the European Central Bank. Simon Ward, of Henderson Global Investors, said ECB loans to Greek banks jumped by €12.5bn to a record €59.8bn in February.
Earmuff time for a recently downgraded into near default RBS:
A chunk has been used to cover “an incipient run on Greek banks”, which have lost €8.4bn in deposits since December. The ECB changed tack last week, saying it would continue to accept BBB- debt as collateral into 2011.
Greece is now openly trying to be both Europe's Enron and AIG:
This reduces the risk that Greek debt will be disqualified. Experts say the ECB is openly propping up the Greek banking system.
As for why nothing has been resolved on Greece, Evans-Pritchard covers that too:
Far from stemming contagion, the deal leaves Club Med exposed. Underlying default risk has risen for Greece, Portugal, Italy and Spain, as well as for Ireland, Slovakia and Malta even if credit markets keep missing the point. The world's top holder of EU debt does understand. Greece is the "tip of the iceberg", said the deputy-governor of China's central bank. "The main concern today, obviously, is Spain and Italy."
The 'rescue' resolves nothing for Greece, either short-term or long-term. The EU statement said "no decision has been taken to activate the mechanism." Precisely. The joint EU-IMF facility can be activated only ultima ratio – as a last resort – once Greece is shut out of debt markets and not until eurozone stability is threatened.
“So they want Greece to reach the point of bankruptcy before they help us?” asked Greek opposition leader Antonis Samaras
Greece is worse off than before. It cannot decide when to invoke the mechanism. It has given up its right as an IMF member to go to the fund when it wants, leaving it prisoner to Europe's deflation dictates. "The IMF would be a lot softer than Europe," said Ken Rogoff, the fund's former chief economist.
Lorenzo Bini Smaghi, an ECB board member, said the deal has at least averted "Europe's Lehman". I agree that there is an equivalence of sorts between America's sub-prime and the Club Med bust and that a European banking system with wafer-thin capital buffers and a cupboard full of skeletons cannot risk a Greek debacle at this juncture, but what exactly has been averted? Roughly €22bn (£19.8bn) in joint IMF-EU funds might be available, some coming from states in trouble themselves. This is not enough. No encore is likely. Germany will not pay twice.
Erik Nielsen from Goldman Sachs said Greece must raise €24.7bn by late May. The noose then tightens. Long-term debt amortisations are 7pc of GDP this year, 10.2pc on 2011, 11.8pc in 2012, 9.7pc in 2013, and 10.4pc in 2014. "Greece faces both a liquidity crisis and a solvency crisis. It is not clear that European policy-makers fully appreciate the scale of the problems," he wrote in a report, Here Comes The IMF.
Mr Nielsen said Greek data released last month show that the budget deficit is 16pc of GDP on a "cash basis", rather than the official 12.7pc on an "accrual basis". The IMF is watching closely, having warned last June that Greece's "cash fiscal data show consistently weaker results than accrual data, which has been inadequately explained." Translation: the real deficit is 16pc. Greece is drowning.
We could not have said it better ourselves, and the truth is it is game over for Greece. Yet just like the GSEs, and the TBTFs, recognition of the sad reality that the entire financial system is insolvent is merely delayed month after month, with the hopes that South Korea will keep pretending that North Korea did not attack it, and every other geopolitical catalyst remains dormant.