Greek Debt Will Not Be Included In Bond-Buying Plan; ECB's Knot Warns QE "Distorts Markets"

DRAGHI PRESENTED QE PLAN TO SCHAEUBLE, MERKEL, SPIEGEL SAYS

Once again the clear preference for holding Swiss Francs over Euros was evident today as EURCHF re-collapsed from over 1.02 to under 0.9750 now. Overnight news from Greece suggesting bank runs are under way was then added to as Bloomberg reports, Greece is set to run out of cash by mid-year if it can’t break the deadlock over its rescue program, according to two international officials. Now, in the final "FU" to Greece, following Wolfgang Schaeuble's earlier comments that Greece does not have a debt problem, Der Spiegel reports after the European close that ECB QE will not include Greek bonds due to their low rating... but will see national central banks buying own-country debt.

 

Overnight we reported on the Greek bank runs...

Two Greek systemic banks reportedly submitted the first requests to the Bank of Greece for cash via the emergency liquidity assistance (ELA) system on Thursday, in response to the pressing liquidity conditions resulting from the growing outflow of deposits as well as the acquisition of treasury bills forced onto them by the state.

 

Banks usually resort to ELA when they face a cash crunch and do not have adequate collateral to draw liquidity from the European Central Bank, their main funding tool. ELA is particularly costly as it carries an interest rate of 1.55 percent, against just 0.05 percent for ECB funding.

 

The requests by the two lenders will be discussed by the ECB next Wednesday.

 

Bank officials commented that lenders are resorting to ELA earlier than expected, which reflects the deteriorating liquidity conditions in the credit sector.

 

Besides the decline in deposits, banks were dealt another blow on Thursday with the scrapping of the euro cap on the Swiss franc. Bank estimates put the impact of the euro’s drop on the local system’s cash flow at between 1.5 and 2 billion euros.

 

Deposits recorded a decline of 3 billion euros in December – a month when they traditionally expand – while in the first couple of weeks of January the outflow continued, although banks say it is under control.

 

A major blow to the system’s liquidity has come from the repeated issue of T-bills: In November the state drew 2.75 billion euros in this way, in December it secured 3.25 billion euros, and it has already tapped another 2.7 billion in January. Of the above amounts, a significant share – amounting to 3 billion euros according to bank estimates – was in the hands of foreign investors who will not renew them, so they have to be bought by the Greek banks.

 

Local lenders had also resorted to ELA in 2011 to cope with the outflow of deposits and consecutive credit rating downgrades of the state (and the banks) that made Greek paper insufficient for the supply of liquidity by the Eurosystem. In May 2012, due to the uncertainty of the twin elections at the time, local banks drew 124 billion euros in ELA to handle the unprecedented outflow of deposits.

Then this morning Bloomberg reports... Greece is screwed...

Greece is set to run out of cash by mid-year if it can’t break the deadlock over its rescue program, two international officials with knowledge of the matter tell Bloomberg’s Nikos Chrysoloras and Rebecca Christie.

 

Nation could probably stretch past the end of Feb. -- as far as PM Antonis Samaras has assured his nation’s financing -- if tax flows continue and there’s no disruption to emergency liquidity support for Greek lenders, said the officials, who spoke on condition of anonymity

 

In July and August, two bond repayments to ECB totaling EU6.7b ($7.7b), probably would overwhelm available buffers, they said

 

Greek FinMin spokesman declined to comment; European Commission declined to comment

But Germany's Schaeuble says... s'all good

  • *SCHAEUBLE SAYS GREECE DOESN'T HAVE DEBT PROBLEM NOW: SPIEGEL
  • *SCHAEUBLE SAYS HONORING ACCORDS IN GREECE'S INTEREST: SPIEGEL
  • *SCHAEUBLE SAYS GREEK DEBT CUT NOT ON THE TABLE, SPIEGEL REPORTS

However... Europe appears to be telling Greece to get lost...

  • *ECB QE WON'T INCLUDE GREEK BONDS DUE TO RATING, SPIEGEL SAYS
  • *GERMANY'S SPIEGEL MAGAZINE DOESN'T CITE SOURCES ON ECB QE PLAN

Greek bonds are re-tumbling.

And there is apparently one sane voice left on the ECB Council:

  • *ECB'S KNOT SAYS HE SEES NO SIGNS HOUSEHOLDS POSTPONING SPENDING
  • *ECB'S KNOT SEES RISKS QE DISTORTS MARKET PRICES: SPIEGEL

But seems to confirm it's coming...

  • *KNOT: ECB MUST AVOID DECISIONS RESERVED FOR ELECTED OFFICIALS
  • *ECB QE PLANS SEE NATIONAL CENTRAL BANKS BUYING OWN-COUNTRY DEBT
  • *ECB TO SET 20%-25% PURCHASE LIMIT FOR COUNTRIES' DEBT: SPIEGEL

Sigh...

*  *  *

It appears the run for CHF 'safety' is re-picking up...

 

We suspect more to come...