Dear Greece, good luck placing any more bonds to non-hedged CDS wannabe basis holders. After Angela Merkel just announced that the use of derivatives must be restricted to halt market "speculators" from exploiting the Greek fiscal crisis (for whose creation Greece has had no responsibility whatsoever, duh), it is pretty much game over for sovereign CDS, the SovX index, and who knows what else. And now the stage is set to provide Greece with a full bail out, subject to the crucifixion of at least one hedge fund that bought at least $5 million in Greek CDS in early February.
“We must succeed at putting a stop to the speculators’ game with sovereign states,” Merkel told reporters in Berlin today after talks with Greek Prime Minister George Papandreou.
“We can’t allow speculators to be the profiteers of Greece’s difficult situation.”Merkel said “the question doesn’t arise” of financial aid to Greece. Instead, the two nations share “a common responsibility” to curb speculation, and that she will press for action within the European Commission and seek to enlist the support of the U.S.
Oh, and just in case you were wondering who was going to come up with the brilliant sceme of eliminating the hundreds of billions in gross notional sovereign CDS market, yep - you guessed it: politicians!
“Derivatives must be curbed,” she said. “That’s certainly technically not easy, but this is an issue where politicians lead the way.”
Papandreou said he was “thankful for the preparedness to work together to fight speculation.”
“Greece has not asked for any financial support,” he said. Rather, the Greek government’s 4.8 billion euro ($6.5 billion) package of austerity measures, passed by parliament in Athens today as protestors demonstrated outside, are a “resolute message” to markets, he said.
Next up: any Goldman recos to short the euro will get the author immediately thrown in jail. Better yet, politicians will find a way to make any FX market participants guilty of Class 1 Felonies.