Thursday, 12 May 2011

Greeks Bearing Gifts

PIIGSUK = Portugal, Ireland, Italy, Greece, Spain, United Kingdom.

A collection of six financially precarious economies in the Euro zone, most of which have their financial bollocks firmly grasped by a handful of bankers in Germany and France.

Well Portugal, Ireland, Greece and Spain were in the news this week.

Mike Shedlock ran with some data here.

S&P Cuts Greek Debt 2 Notches Deeper in Junk Cites 50% to 70% Haircuts: CDS at Record High, Probability of Default is 68%

Last week Trichet reiterated for the nth time "restructuring is not on the agenda". This follows his February pronouncement the "whole world" approves the bailout program.

Today, once again, the market refuses for the nth time to believe Trichet's nonsense, and Credit Default Swaps on Greek debt and Irish debt hit a new record high. Greece is now the lowest rated country in Europe.

UPI had more good PIG news here.

PARIS, May 9 (UPI) -- Having got themselves into a hole, the leaders of the eurozone countries have spent the last week digging it deeper by the day.

They began by signaling that Portugal would get a much more lenient interest rate on its bailout loans than Greece or Ireland. This in itself amounted to an admission that the onerous rates charged earlier would, as many economists warned, so depress their economies that they would never get out of debt.

But once Portugal had been given the easier ride, the Irish and Greeks understandably began to demand the same treatment. But even the Portuguese are facing a grim future. They don't at present have a sovereign debt crisis but they soon will. They are being lent $116 billion, which is almost 50 percent of the country's gross domestic product. The loans will take Portugal's debt to more than 120 percent of GDP


For the Greeks, the question is becoming a matter of life and death. Their sovereign debts total $327 billion -- 160 percent of GDP -- and the markets simply don't believe that Greece can or will pay. Interest rates for Greece's two-year bonds are now more than 26 percent. The insurance rates on Greek debt have reached surreal proportions. To insure $19 million of Greek debt for five years now costs $1.37 million a year -- more than $7 million, with compounded interest.

But the Greeks have very few cards to play. The only serious one is the nuclear option: a unilateral withdrawal from the euro and a massive devaluation of the new national currency plus a default on all debt.

This would plunge the European Union and its central bank into crisis and force heavy losses onto a number of French and German banks. It would probably leave the Greeks condemned to fierce austerity for years to come but at least they would inflict some real pain on their EU "partners." Indeed, Jurgen Stark, chief economist of the European Central Bank, has warned that it would provoke the same kind of crash as the Lehman Brothers bankruptcy of 2008.
Note that last line.

Indeed, Jurgen Stark, chief economist of the European Central Bank, has warned that it would provoke the same kind of crash as the Lehman Brothers bankruptcy of 2008.

What of the Irish? The Daily Mail ran a rather poignant piece here.

We won't pay off our debt... Fine Gael Minister admits Ireland plans to restructure €250bn borrowings as economist warns Ireland is bankrupt

Ireland will never repay the €250bn it has borrowed from the EU and IMF, senior government insiders have admitted – but we will not default until our ­EU partners agree we have no choice.

A senior minister last night told the Irish Mail on Sunday that the Cabinet expects our crippling debts to be ‘restructured’ within three years.

However, Fine Gael is pinning its hopes on the EU being forced by outside events, such as the collapse of the Greek economy, into a realisation that Ireland cannot hope to pay off the debt mountain accumulated by our rogue banks.

Did you get that? The Irish are hoping the Greeks go under so their sucking chest wound will get more favourable treatment. If thats an union I'd hate to see them divided.

Restructure is finspeak code for if you invested in us, you're in trouble.

The admission came as Professor Morgan Kelly, the economist who predicted our property crash and the bank crisis, warned that without a restructuring, Ireland will be crushed by its quarter of a trillion euro debt.

And Spain? Mike Shedlock dug out some data on Spain this week here.

  • The deficit compromises growth objectives for 2012 through 2014.
  • Staff reductions are increasingly difficult.
  • Spain is in a very problematic situation.
  • Personal income taxes are down 19.4%
  • Corporate incomes taxes are down 42.7%
  • VAT collection is down 22.4%
  • Excise duties are down 40%

  • If credit froze in GFC Act I when a low level US investment bank went under what will Euro led GFC Act II bring? In 2008 commodities, risk currencies, stocks etc all went south and rapidly. However in July 2008 if you bought $US with $AU you made 70% in months as the AUD tumbled from 0.98 to 0.60. If you leveraged short you are probably retired.

    Now couple a credit freeze with an Australian govt in deficit and tumbling Australian house prices, exposed banks and 0.60 on AUD could be generously high.

    This could take a year or 2 but you can feel the first stirrings of an updraft.

    1 comment:

    1. it is hard to believe that people have not learnt the lessons of history...too many declaring victory too soon...

      And all the while the fingers of instability grow