|
So, haha, you
want to know, haha, what dimensions the Eurozone debt disaster actually has?
Well, how about trying some free random number generator? Just set its
range from a few hundred billion to a few trillion, give it a spin and
believe the number as much as any of the official lies disguised as press releases
by Eurozone governments and monetary institutions.
This method will yield the same error of margin than "official"
figures which can now double overnight. It was the Wall Street Journal that scooped the
shocker of the day:
Greece may
require financial assistance of as much as €80 billion
($107.92 billion) to escape its debt crisis and avoid default, Bundesbank
President Axel Weber told a group of German lawmakers Monday, according to a
person familiar with the matter.
The estimate, considerably
more than the €45 billion that European countries and the
International Monetary Fund are currently prepared to extend Greece this year
if it needs a bailout, suggests that a rescue of the country may come in
several stages and reach beyond 2010.
Mr. Weber, a
member of the European Central Bank's governing council and a leading
candidate to succeed Jean-Claude Trichet as ECB president next year, told the
legislators that Greece's situation was worsening and that "the numbers
are changing all the time," according to the person. A Bundesbank
spokesman declined to comment.
If you now think
this will cover Greece's stabilization, haha, you are dead wrong. Give the
random number generator another spin and you will arrive at the exact figure this blogger has stated last summer and
that is now also used by the German Bundesbank.
According to a Reuters
report,
German newspaper
Bild said Weber warned that the total amount of aid Greece requires may
not be known until later, drawing a parallel with the case of
nationalised German property lender Hypo Real Estate in 2008.
I would not carve
Weber's figure of €80 billion in stone,
remembering another Reuters story from last Friday, citing internal ECB
documents:
The situation for
Greek banks remains difficult and could deteriorate further, according to a
European Central Bank document seen by Reuters.
The Greek banking
system is availing itself of the liquidity provided by the ECB and national
central banks while the recent changes to rules on accepting assets as
security in exchange for loans removed the risk banks would no longer be able
to use government bonds as collateral, says the document, taken by ECB
President Jean-Claude Trichet into a meeting of euro zone finance ministers
on Friday in Madrid.
The ECB will keep
accepting BBB-rated debt next year in a boon for Greece, and will exempt
government bonds from new risk penalties on lower-rated assets.
"Still the
liquidity situation of Greek banks remains difficult and could
deteriorate," the document says.
The document also
says market worries remain after an aid package announced last week to help
Greece."
Despite the
commitments expressed in the statements by the euro area heads of state and
governments on 25 March and Eurogroup on 11 April and the determination
signalled by the Greek government to implement the announced adjustment
measures for 2010, financial market tensions are persisting."
 It appears Mr.
Market is still the best indicator of what is to come as nobody else appears
to have reliable data: Greek yield spreads reached new record highs north of
470 basis points above benchmark Germany this week with no signs of
abatement.
Greek CDS were
last traded above 450 basis points, meaning it costs $450,000 to insure $10
million government debt against default. In January such an insurance cost
only $250,000, the chart to the left shows.
As Weber also
said there was no alternative to bailout Greece at this point of time it has
to be questioned whether there is only political will or also some
rationalist thinking behind such a move.
Focusing on
fundamentals, I highly doubt Eurozone bailouts are judged by the numbers
only. Although this may sound ironic as it was just proven that nobody seems
to have an exact overview I get scared by the "don't worry be happy and
get your bailout" attitude when taxpayers are suddenly confronted with
double the figures the day before.
Remember Ireland
(posted here):
In the case of
Ireland first reports of a €18 billion hole were overtaken by € 32
billion and ended at €43 billion of
new capital needed by banks as of Wednesday morning.
So think again
before trusting any happiness-sopping releases telling you the crisis has
been contained. We've heard this one since August 2007 by now, and not
a single structural issue has improved since.
I am holding on to my opinion that Eurozone members will out-compete each
other on yields later this year as not a single structural issue has yet been
tackled in the Eurozone.
- Hedge fund oversight: result zero
- Cross-border
banking oversight: result zero
- Derivatives oversight: result zero
- Sovereign
deficits: rising and no end in sight.
DISCLOSURE: A
speculative short EURUSD position based on the current market perception that
Europe's problems are currently bigger than those of the US. Long gold/silver
bullion as both will see further economic deterioration that's not yet
showing up in data I consider dubious at best anyway.
Toni Straka
Editor, the Prudent Investor
Toni Straka is an
INDEPENDENT Certified Financial Analyst (OeVFA, EFFAS) who worked as a
financial journalist for 15+ years and now evaluates global market trends.
Analyzing financial and political news permanently he wants to share his
insight with those who understand that we are in an era of global
redistribution of wealth. The US-European centric approach does not work
anymore. Five billion people in the developing countries now demand their
fair share of the world's resources.
|
