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Rebel Traders
reports that Greece Hits the Panic Button.
(emphasis mine) [my
comment]
Greece Hits the Panic Button
by Chuck on April 24, 2010 at 1:05 am · 0 Comments
… just three weeks ago Greece was claiming that a bailout would not
be necessary. How quickly things have changed.
Sinking under the weight of its own debt and shunned by international
investors, Greece on Friday asked fellow euro-zone members and the
International Monetary Fund to bail it out, a humbling step that reshapes
the rules of the currency union and, for Greece, augurs years of economic
pain.
Financial markets had concluded days or even weeks earlier that the country
would need a rescue, and attention turned to what comes next—how fast
the money can be disbursed, if the IMF would demand tougher economic
sacrifices than Greece has already made, and, crucially, whether the roughly
€45 billion ($60 billion) on offer would solve the country's problems
or just delay a reckoning.
Many of those answers remain unclear. The euro rose against the dollar. But
Greek bonds lost some early gains, with prices indicating investors think
that even with a bailout, Greece may eventually default on its debts. Those
fears raise the odds that Greece's new lenders will lean harder on the
country to slice its deficit.
Investors have been walking away from Greek bonds all year, under
Athens' darkening budgetary cloud and persistent worries about the accuracy
of its financial reports. That exit turned into a lathered gallop Thursday
after the European Union's statistical arm said Greece's budget deficit was
even wider than believed. Ten-year bond yields shot to nearly 9%, almost
triple what Germany pays to borrow.
"The time has come," Prime Minister George Papandreou told his
country in televised comments from the Mediterranean island of Kastelorizo,
just off the Turkish coast. "It is a necessity. It is a national and
pressing necessity."
Greece's finance minister, George Papaconstantinou, sent a one-sentence letter
to EU authorities around midday asking for help. He said aid could come
within days.[…] (WSJ)
A one sentence letter, probably "HELP" is all it said.
So now that the panic button has been pushed, and nearly $60 billion has
been asked for in order to keep the nation afloat will now come the real
test. Will fellow European nations that pledged support actually come through
with it.
The concept of how to bailout Greece was formulated by various financial
ministers from the European Union. Now it has to be approved by government
leaders in each of the nations that will be required to contribute money to
the rescue fund. Germany may be the toughest battle of them all.
Friday, April 23, 2010 2:21:49 PM
German Fin Min Schaeuble: Reiterates that no German budget funding will be
used to bail out Greece
German Academics to challenge Greek aid package in constitutional court; Says
aid violates EU's Maastricht Treaty – Greek aid would constitute an
illegal subsidy.
The battle to secure the funding that Greece is now asking for may be
just getting started. I'm quite sure this situation will continue to have
twists and turns in the days ahead.
German Financial
Aid Highly Doubtful
Businessweek
reports that Germany could say no to Greece aid.
Minister:
Germany could say no to Greece aid
BERLIN
German Finance Minister Wolfgang Schaeuble says that Germany
has not yet decided whether it will agree to Greece's request for financial
aid.
Schaeuble told weekly Bild am Sonntag the fact that neither the European
Union nor Germany have made a decision regarding Greece's aid request until
now means that the answer could be either positive or negative.
…
The Financial
Times reports that aid might come from the IMF rather than
Germany.
…
Greece must refinance €8.5bn in bonds that mature on May 19.
Interest rates on Greek debt reached cripplingly high levels on Thursday and
remained high yesterday in spite of some market relief that Greece had requested
the bail-out.
Negotiations with a team from the Commission, ECB and IMF are due to be
completed on May 6, but much uncertainty surrounds the disbursement of the
loans. Germany's centre-right coalition government faces a difficult state
election in North Rhine-Westphalia on May 9 and is sensitive to the risk of a
backlash from voters angry that German taxpayers should bail out profligate
Greeks.
Some German politicians said that it was therefore possible that the
first tranche of aid might come from the IMF rather than Germany,
whose final contribution could go as high as €8.4bn.
…
IMF (US) aid
virtually guaranteed
The Wall Street
Journal reports that the IMF speeds up Greece efforts.
APRIL 25,
2010, 10:49 A.M. ET
IMF Speeds Up Greece Efforts
By ADAM
COHEN
WASHINGTON — The International Monetary Fund is speeding up
efforts to deliver funding help to Greece, IMF Managing Director
Dominique Strauss-Kahn said Sunday, following a meeting with Greece's finance
minister.
The Greek government on Friday formally asked euro-zone countries and the IMF
for help. Euro-zone states have pledged to loan Greece up to €30
billion in the first year of any aid program, while the IMF is expected
to provide a further €15 billion.
…
"Since we received the request for financial support last Friday, our
discussions with the authorities have accelerated," Mr.
Strauss-Kahn said in a statement.
"I am confident that we will conclude discussions in time to meet
Greece's needs," he added.
…
CBC reports that IMF seeks to soothe Greece over fiscal
crisis.
IMF seeks
to soothe Greece over fiscal crisis
Last
Updated: Saturday, April 24, 2010 11:56 PM ET
CBC News
…
The Mediterranean country on Friday formally asked the IMF and the European
Union for the bailout cash after weeks of speculation. Greece has to
come up with at least $8.2 billion by May 19, its next credit due
date, or it could become the first euro country to default on debt.
…
But discord rages in Greece over whether to accept outside meddling. Germany
is demanding major budget cuts and tax hikes from Athens as a condition of
any loans, while the IMF has a reputation for requiring austerity
measures that suggests it would echo that [IMF's reputation
doesn't apply here. The IMF is a proxy for the US, and the US will never
allow a Greek default]. Thousands of public servants' jobs are
at risk.
Asked at a news conference Saturday whether he was concerned that the IMF was
being "demonized," Strauss-Kahn said it would not be the first time
that the global body, which often delivers harsh economic remedies, has been
cast as the villain.
But he maintained that today's IMF is a changed institution from
the agency that generated anger in countries around the world for its
devastating austerity programs in previous crises.
IMF officials have said its current remedies are crafted with an eye to
protecting the most vulnerable. In the past, such organization policies as
requiring countries to privatize their water systems have unleashed mass
protests.
…
Greek Default
would be a disaster for the US
Money Morning
reports that spreading sovereign debt issues.
…
Sovereign debt issues have already spread to other Eurozone nations and
are escalating with Greece's situation. Spain, Portugal and Ireland already
faced increasing bond yields this week, strengthening the argument that Greece
is the start of a debt contagion spreading through Europe to the United
States.
"[T]his crisis has moved beyond being just a Greek crisis. It is a
sovereign risk crisis stemming from the collapse of the traditional G7
growth model of high indebtedness and a low share of exports in the economy,
which affects not just Greece but also countries such as Spain, Italy,
the UK and the US," Lena Komileva, head of G7 market
economics at Tullett Prebon, told the Financial Times.
…
My reaction:
Greece hit the panic button last Friday.
1) Greece on Friday asked fellow euro-zone members and the International
Monetary Fund to bail it out.
2) Investors have been walking away from Greek bonds all year. Greece's
ten-year bond yields shot to nearly 9%, almost triple what Germany pays to
borrow.
Greek Default would be a disaster for the US
1) The Greek debt crisis highlights the collapse of the traditional G7 growth
model (ie: the US growth model) of high indebtedness and a low share of
exports in the economy.
2) A Greek Default would be a disaster for the US. It would be the first
confirmed sovereign default of a Western US-style economy, and it would send
investors running from the debt of all similar Western economies, especially
US treasuries.
German Financial Aid Highly Doubtful
1) According to German Finance Minister Wolfgang Schaeuble:
A) Germany has not yet decided whether it will agree to Greece's request for
financial aid.
B) No German budget funding will be used to bail out Greece
2) German Academics will challenge any Greek aid package in constitutional
court as violating the EU's Maastricht Treaty.
3) Germany's centre-right coalition government faces a difficult state
election in North Rhine-Westphalia on May 9 and is sensitive to the risk of a
backlash from voters angry that German taxpayers should bail out profligate
Greeks.
4) Germany is demanding major budget cuts and tax hikes from Athens as a
condition of any loans.
IMF (US) aid virtually guaranteed
1) The International Monetary Fund is speeding up efforts to deliver funding
help to Greece.
2) IMF officials are circulating the story that "today's IMF is a
changed institution from the agency that generated anger in countries around
the world for its devastating austerity programs in previous crises."
This suggest that IMF officials are embracing to the idea of aid without
demand tough economic/fiscal demands attached.
3) Given the vital importance to the US of preventing a Greek default, the
first tranche of aid will probably come from the IMF not Germany.
Conclusion: I haven't been focusing on the "Greek debt
crisis" because I believe it is a non-event in the grand scheme of
things. As I have written before, it wouldn't be a problem that can be solved
by printing money which will bring down the global financial system. In the
case of the "Greek debt crisis", the US will cave, and the IMF will
provide enough money to bailout Greece for a couple of months. Before Greece
has the chance to run out of money again, the 2010 food
crisis will begin this summer, leading to the
default of all countries with the US growth model of high indebtedness.
Eric de Carbonnel
Market Skeptics
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