Greece on the Verge of Default

greek dominoesThe rumors are swirling that a Greek Default is imminent:

Despite strong denials that the country is heading for a default, rumours have grown that the end game is approaching. Wolfgang Schäuble, the German finance minister, has insisted that a sixth, €8bn (£6.8bn) instalment of aid will not be released unless Greece enacts corrective measures to kickstart its economy and improve competitiveness. Experts from Washington and Brussels will fly into Athens this week to assess whether Greece is sticking to its programme of drastic spending cuts and tax rises, amid fears that its creditors could be ready to pull the plug.

Literally there are talks about seizing Greek assets, by force.

Germany’s EU commissioner Günther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets.

Greece, assuming in response, announced a new property tax, collected through electricity bills:

The tax is €4 per square meter (about $0.50 per sq. feet). The government is projecting this levy will make up for the revenue shortfall due to the sharper than expected contraction in the Greek economy.

Yet, according to Credit Write Downs, Greece's economy is now projected to contract 5%, instead of the 3.8%, upon which the bail out redux was based.

Additionally the terms of austerity created a self-fulling prophesy:

The chief reason why Greece cannot meet its deficit targets is because the EU has imposed the most violent fiscal deflation ever inflicted on a modern developed economy - 16pc of GDP of net tightening in three years - without offsetting monetary stimulus, debt relief, or devaluation.

This has sent the economy into a self-feeding downward spiral, crushing tax revenues. The policy is obscurantist, a replay of the Gold Standard in 1931. It has self-evidently failed.

It also seems there is infightening at the European Central Bank, with a no bail out German, Juergen Stark, resigning.

In analyzing Spain versus U.K. debt, Paul Krugman points to the Euro and weaker countries dragging Spain down. He then mentions this:

What’s needed, clearly, is for Europe — and ultimately that probably means the ECB — to provide for Spain and Italy the kind of backstop countries with their own currencies can provide for themselves. Without that, the whole euro system is at risk of unraveling, not over the course of years, but over the course of a few weeks.

Bloomberg is now reporting Greece is sure to default:

After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, Chancellor Angela Merkel is laying the ground for what markets say is almost a sure thing: a Greek default.

To see a series of dominoes implode, Moody's is looking to downgrade French banks, due to their large Greek debt holdings.

In this post, Greek Saga Sails On, we overviewed just how much Greek debt is held by other nations' banks. France tops the list, with Germany roaring in second. The United States is 4th in exposure to Greek debt. The IMF is now telling European banks to recapitalize, with what, isn't quite clear, as now the IMF tries to claim rumors of a $273.2 billion dollar European bank capital deficiency are untrue, even though the study is an IMF draft white paper.

Greece itself is filled with riots and protests:



UBS quantified a Greece default and said if weaker nation's leave the Eurozone it could cost them up to 50% of their entire economies.

Business Insider has a list of key critical events to watch and of course is predicting Gold to go soaring. Greece is literally expecting 90% of the private sector to step up for the bond swaps, part of the second bail out. The results of private sector participation are expected tomorrow. Then on the 14th, the Greece-Troika inspectors will try to make sure Greece is dismantling their country through privatization and austerity. These monsters are like Scylla and Charybdis Homer must get past. In other words, expect default.

charybdis scylla Greek credit default swaps on Friday paint the picture:

Credit-default swaps insuring Greek government bonds jumped 701 basis points to a record 3,727 basis points, according to CMA. The five-year contracts signal there’s a 94 percent probability the country won’t meet its debt commitments.

If Greece defaults there is no doubt the United States will go into a new recessionary cycle. There are so many interdependencies and contagion built into the global financial system, never addressed legislatively or by treaty. Contagion was given a few token words in various talks and then promptly brushed under the carpet and stuffed back into the closet by the likes of Goldman Sachs and the U.S. Treasury. Now, here we are with all of Europe throwing up their hands proclaiming, It's all Greek to Me.



JPMorgan explains Euro crisis with legos

Barry Ritholtz brought this to our attention, and it's just a scream, shows how debt is being passed and contagion is increasing, but done with lego illustrations.

A Few Good Bankers

This is going to be a classic. FT Alphaville put up a parody on the European Central Bank press conference, here.

Paul Krugman is the h/t.

Oh, it's a thankless job!

Krugman sums up the situation simply in this op-ed

Krugman really sums up the situation on the problems in Europe, they are glorified shorts, bank runs by large investors. An impeccable disaster.

That's the thing about all of this, global economic malaise is being created by these large institutional investors, such as much as the financial crisis could have been prevented.

This is also what happens when philosophy trumps science.

Tough Love for Greece From Germany

Sending Greece back to the Drachma at this time seems unfair, but the German conservatives want to send Greece back to the Drachma. Greece could have done at least as well as Argentina. Argentina created public works, public debt and the legendary Argentinan inflation, now 20%. I still will take a growing Argentina over Greece any day, any way.

Burton Leed

all of this is nuts

We should have temporarily nationalized the banks in 2008 and it's pretty clear investors needed to forgive a large portion of Greece's debt, take haircuts, and so on. We did one post which truly it's squeezing blood from a stone in terms of Greece's GDP and projections.

In court from Day 1

When you say, "we should" in 2008, that presumably means the White House should have taken that action in 2008, under authority of the PATRIOT Act. Interesting experiment that would have been. Would have assured the election of either of the two candidates who would have stood up and opposed it ... but neither of them would. Anyway, it's all hypotheticals now. Result would have been that the nationalization would have gone very fast to the SCOTUS and turned around there on a dime (cf. Truman's nationalization of steel, Carter's mere mention of nationalization of oil). It would have been a constitutional crisis, which would have resulted in a real banking/liquidity crisis, with all the same housing problems. But it seems that no matter what 'we' do or don't do, there's a constitutional crisis around every corner, regardless of which way we turn. And if it's unemployment, foreclosures, balance-of-trade ... whatever you decide to tag as "it" -- there's no solution, no stability in sight.

And yet ... there are safe and sound 6% notes (5 year CDs) around. Why not? "Steady as she goes."

Taking a slightly more optimistic view

I'm new to this site and learning how it works. My recent article on where the S&P 500 bottom is on my site:

Daily Telegraph and blue helmets

I´m getting sick and tired of reading this on blog after blog.
After reading this the first time I actually went and read the interview.
A real sacrifice since I try to avoid the website of the tabloid "Bild". :)
(It´s somewhat comparable to "The Sun" in the UK if that helps.)

The source for the "blue helmets" is the British Daily Telegraph. A newspaper that sometimes isn´t that accurate when reporting about Germany, to say it politely.
If you want an older example:

In reality Oettinger simply said that obviously the Greek bureaucracy isn´t very effective in collecting outstanding taxes and selling state assets. So he proposed in that interview with the German tabloid “Bild” to send qualified public servants from other Eurozone countries to advise and assist in these tasks.
(And saying that in an interview with a tabloid doesn´t make it an official German proposal or "literally talking about seizing assets" by the way.)

According to newspaper articles (including Greek ones) the Greek state is owned Euro 41 billion in outstanding overdue taxes and fines right now. Other newspaper articles mention estimates of around Euro 20 billion taxes per year lost due to tax evasion. Collecting even half or a third of that would represent serious money, I´d say.

Now that proposal doesn´t seem very practicable to me (foreign language, different tax laws etc.). Oettinger isn´t considered the brightest bulb here in Germany after all. :)

But I understand the frustration.
Instead of announcing more and more austerity measures and higher taxes on the population (and blaming the Eurozone, especially Germany for it) the Greek government perhaps could start with actually enforcing the already existing Greek tax laws?

all the taxes in the world

aren't going to make up for that debt. As far as blue helmets go, we're grabbed raw video from various news sources. They all show massive protests, violence in Greece. I'm not there, but those videos are hard to make up.

World War II Redeux

Blue helmets? What next, Panzers to take the Acropolis? (shades of Aticle V -- does Obama have to send in troops to protect the Greeks?) Yes, the drachma would be a hard swallow, but to have EU countries begin seizing assets by an act of war? How about the Corinth Canal? These are civil matters, debt is not a crime and last time I looked, Greece was a sovereign member of NATO. The Greeks should tell the Germans to stick it, and start making payments on those reparations. Impose a stiff tax on those German tourists who come to the Greek islands for their suntans.

Frank T.

Eleftheria i thanatos

"Eleftheria i thanatos"

The national motto of Greece, meaning "Freedom or death," hails back to the 1820s and the Greek War of Independence (from Ottoman tyranny). "The motto symbolized and still symbolizes the resolve of the people of Greece against tyranny and oppression." The motto was well known in Revolutionary times and often accredited to Patrick Henry's famous "Give me liberty or give me death!"

Wiki link


Also see, wiki link --

The play Cato, a Tragedy contains the line, "It is not now time to talk of aught/But chains or conquest, liberty or death" (Act II, Scene 4). This play was popular in the colonies and was well-known by the Founding Fathers, who used quotes from the play. George Washington had this play performed for the Continental Army at Valley Forge. The phrase "Liberty or Death" also appears on the Culpeper Minutemen flag of 1775.