As a recap , consider the prior post which covers the state of play in the talks on Greece as well as the Eurogroup Summit focusing on the 2014-2020 Budget. As of today , the Eurogroup Summit has failed. Greece has a Monday Fin Min session proceeded by a Saturday Conference Call. The same bars / gaps to an agreement on Greece that existed last Monday still stand today.
The scene in europe is like watching the Jets play the Pats....
http://www.bostonherald.com/sports/football/patriots/view.bg?articleid=1061176721
( see the comedy by clicking the link... )
EAST RUTHERFORD, N.J. — It was comedy night at MetLife Stadium, where the Patriots [team stats] laughed their way to a 49-19 victory against the Jets while spending quality time on the sideline with their feet kicked up and the blooper reel entertaining the masses on the video boards.
http://fredw-catharsisours.blogspot.com/2012/11/while-greek-households-losses-54.html
Having stated the prior facts on the ground , why are not just stocks on the Bourses of Europe rallying notably , but also sovereign credits in Europe and the Euro also ! Have the Gods gone crazy ?
http://soberlook.com/2012/11/emu-leaders-look-for-greek-debt.html
SATURDAY, NOVEMBER 24, 2012
EMU leaders look for Greek debt restructuring solutions; Germany may need to step up for more than its share
Lowering rates and extending maturities seems to be the most palatable solution so far.
Businessweek: - “I have preferences and that means no fresh money because it is difficult to explain to our taxpayers,” Austrian Finance Minister Maria Fekter said. She predicted a “mixed package” that could include lower rates, though countries with higher borrowing costs like Spain and Italy would want compensation for any losses on lending to Greece.And that's one of the places the situation gets sticky. Italy and Spain say they are not in a position to take losses, even if these losses do not involve loss of principal. While funding Greek bonds, Italy and Spain would be paying more in their own borrowing costs than they would receive from the reduced Greek debt coupon. These nations are now pressuring Germany to compensate them for whatever "Greek pain" they may endure.
GS: - German government may be asked to compensate other governments for additional Greek financial support. Reducing interest payments for the Greek government would be one way to narrow the funding gap that has opened up.Lower rates, however, would imply that some governments, notably the Italian and Spanish governments, would have to pay higher rates in funding the Greek help than what they receive in interest payments from the Greek government. One solution, according to press reports, would be that the German government compensates these governments, to some extent at least, for the interest spread.It is not clear whether such a solution would be acceptable to the German government. But it suggests that some difficult questions still need to be answered before the next tranche can be paid out.It is difficult to imagine the German government telling its citizens that not only is it easing the terms of Greek debt, but the taxpayers are also compensating Italy and Spain (and possibly other nations) for their share of losses. The Greek restructuring numbers are actually relatively small, particularly compared to Germany's government budget. But it is not as much about the numbers as it is about politics. With less than a year before the next general election in Germany, a Greek solution is critically important. At the same time the solution German voters would prefer can not involve additional taxpayer resources (or at least perceived as such).
So the Eurozone leadership continues to dig for other sources of funds. Everything seems to be on the table, including raiding the profits made by the Eurosystem (the ECB and NCBs) on Greek debt. There is even talk of the ECB returning future interest payments on the Greek bonds it holds back to Greece. This is unlikely to be sufficient, but is certainly easier to sell to the voters.
Businessweek: - Finance ministers are also considering how to tap profits made by the ECB and national central banks on Greek bonds, drawing on a February commitment to recycle that money back to Greece. The question of how to treat future ECB profits also has to be addressed.
In spite of dire economic conditions, Greece actually stands a good chance of turning its economy around if the debt burden is reduced (see discussion). The Eurozone has to find a restructuring solution if Greece is to be part of the EMU going forward. And Germany may need to step up once again. As of today, Angela Merkel seems optimistic: “I believe there are chances, one doesn't know for sure, but there are chances to get a solution on Monday...” This should make for an interesting weekend in the euro-land.
Rate Profile Information for GGGB10YR
The rates are comprised of Generic EUR Greece government bonds. The underlying benchmark bonds are located under {YCGT0156 DES} 2 for 'Members'. These yields are based on the bid side of the market and are updated intraday. To view all terms/securities type {ALLX GGGB}. Pricing source for the bond: BGN. The generic will not update if we do not have rates for the underlying benchmark bonds, or if we do not have the underlying terms on the curve.
Rate Profile Information for GGGB10YR
The rates are comprised of Generic EUR Greece government bonds. The underlying benchmark bonds are located under {YCGT0156 DES} 2 for 'Members'. These yields are based on the bid side of the market and are updated intraday. To view all terms/securities type {ALLX GGGB}. Pricing source for the bond: BGN. The generic will not update if we do not have rates for the underlying benchmark bonds, or if we do not have the underlying terms on the curve.
( 16.47 yesterday.... note the moves from the highs in latter part of October ! )
http://online.wsj.com/article/SB10001424127887324352004578136362599130992.html
BRUSSELS—One of the euro zone's preferred options for cutting Greece's debt load—buying back bonds held by private investors at a discount—is in doubt after the bonds' prices rose sharply, several European officials said on Friday.
The rally in outstanding Greek bonds in recent days has made any buyback plan more expensive, eroding the impact it would have on Greece's debt. It raises the challenge for euro-zone finance ministers to seal a deal at their next meeting on Monday that would both plug holes in Greece's €246 billion ($316.95 billion) bailouts and bring the country's debt load to a more manageable level.
"The whole buyback operation depends on the price," one of the officials said. "If the price is too high it will not be done." Two other officials confirmed that the buyback has now come into question.
Experts from euro-zone member states' finance ministries met on Thursday night and Friday to nail down the technical details of an agreement that will also need the support of Greece's other creditors: the European Central Bank and the International Monetary Fund. The ministers themselves will hold a teleconference Saturday to resolve some of the remaining questions, the official said.
But doubts over the effectiveness of the bond buyback leave the euro zone with even fewer options for bringing Greece's bailout program back on track, after they ruled out taking a cut in the face value of their own loans to Athens. Of all the options being discussed, the bond buyback was the only one that wouldn't hurt the governments' own chances of being repaid.
In a buyback, Greece would offer private investors—which still hold some €60 billion of Greek debt—a price significantly below the bonds' face value, allowing the government to quickly retire part of that debt. Greek bonds have been trading at a sharp discount amid doubts that Athens would be able to repay them, despite a restructuring this spring.
Since the summer, prices have gone up gradually, amid rising expectations that Greece will stay in the euro zone. On Thursday, bond prices rose to their highest level since the restructuring, after German Finance Minister Wolfgang Schäuble said Wednesday that he would support lending Greece an extra €10 billion to fund a buyback. According to two officials, however, the euro zone is now talking about spending less, likely somewhere around €5 billion.
A Greek official with knowledge of the buyback plan said any offer could be about 30 cents to the euro but has yet to be firmed up. "We are all kind of nervous about this," the Greek official said. "This [the buyback] will be on a totally voluntary basis so the more prices go up, the less benefit the plan will yield."
Greek 10-year bonds were trading at just under 34.2 cents to a euro on Friday afternoon in Europe, having traded as high as 35.6 cents to a euro on Thursday.
"For a bond buyback to be effective in reducing debt, a large proportion of the debt stock needs to be in bonds and these bonds need to be available for purchase," said Justin Knight, head of European interest rate strategy at UBS UBSN.VX +0.96% . "This is not the case in Greece, and so it is doubtful whether buying back bonds from private investors would materially impact Greece's debt dynamics."
One other drawback of the buyback is that a large proportion of the outstanding bonds is held by Greek banks, which would likely need more government help if they were to take more losses.
Euro-zone experts were still discussing other measures to bring Greece's bailout program back on track, including passing back to Greece around 75% of the profits they expect to receive from Greek bonds held by the European Central Bank, according to one of the officials. There was also a plan to cut interest rates on bilateral loans to Euribor plus 0.6 percentage point from Euribor plus 1.5 percentage points currently, the official said.
Extending maturities on bailout loans, cutting interest rates on loans financed through the euro-zone rescue fund and letting Greece issue more short-term debt were also still on the table, among other measures.
http://ransquawk.com/headlines/ecb-s-weidmann-says-ecb-help-in-greek-bailout-can-be-only-be-advisory-according-to-a-report-23-11-2012
( ECB says it won't finance rube goldberg schemes... Looks like snatching ECB profits on Greeks bonds off the table , at least in the eyes of the ECB's Weidmann. )
ECB's Weidmann says ECB help in Greek bailout can be only be advisory according to a report
Says:
- ECB can't finance Greek bailout.
- Greek debt not sustainable.
- ECB can't finance Greek bailout.
- Greek debt not sustainable.
17:09 - ECB - Source: Newswires
http://ransquawk.com/headlines/german-finance-minister-schaeuble-says-it-is-not-easy-to-close-gaps-in-greek-financing-23-11-2012
German FM Schaeuble not encouraging regarding Greece.....
German finance minister Schaeuble says it is not easy to close gaps in Greek financing
Says:
- Optimistic we will find a solution.
- Greece can't catch up overnight.
- We will get a reasonable result for EU budget.
- Spain may need only about 50% of bailout funds set for banks.
- Optimistic we will find a solution.
- Greece can't catch up overnight.
- We will get a reasonable result for EU budget.
- Spain may need only about 50% of bailout funds set for banks.
but consider German Chancellor Merkel's comments - the Gods must be crazy in Germany....
http://ransquawk.com/headlines/255352
German Chancellor Merkel says confident decision will be made at Monday's meeting
Says:
- No time to waste on Greek agreement.
- No time to waste on Greek agreement.
http://www.zerohedge.com/news/2012-11-23/europes-apparent-utopia
On Europe's Apparent Utopia
- Bond
- Central Banks
- Credit Suisse
- European Central Bank
- Germany
- Greece
- Gross Domestic Product
- headlines
- International Monetary Fund
- Italy
- Portugal
- Reality
- Reserve Fund
- Sovereigns
With EURUSD hitting one-month highs and Greek and Spanish government bonds pushing higher day after day, one could be forgiven for thinking all is well across the pond. Tail-risks removed, firewalls in place, and everything ticking along nicely. The reality, of course, is a rather different picture. This week alone, 36bps compression in Spanish sovereign bond spreads, 100bps in Portugal...
European stocks are up over 5%!!!
and yet - under the surface - a harsher reality is coming into view...
Via Credit Suisse:
As we head into year-end, European storm clouds are building. In a week of considerable European news, the most significant in our view is the mass of headlines coming out on Greece. The inability, yet again, of the Eurogroup to reach an agreement in the absence of market stress we don’t think bodes well for the ECB-backed positive market environment to be sustained into 2013.
Greek headlines are negative – for Greece and Europe
It is hard to construe the newsflow out of Greece as anything other than negative.As we outlined last week, in our view the hard stance being taken by the IMF looked likely to lead to a better near-term outcome for Greece’s financial situation than if the IMF wasn’t involved. This is no longer clear.
Greece’s debt load is patently unsustainable, in our view, and it is necessary to cut it again. Which requires the euro area to put its money where its mouth is, and act to show their commitment to keeping Greece in the euro area by cutting Greece’s official sector debt.
It’s not a sufficient condition to put Greece on a sustainable economic path by any means, but it helps – not least because of the commitment it shows. And at the broader level, the fact that it would show that the euro area can take a decisive, pre-emptive action is positive when looking across to the situation in Spain. But instead, we believe the euro area again looks likely just to fudge the issue. We continue to expect funding for Greece to be forthcoming – although an agreement on Monday is far from certain – but a meaningful reduction in the country’s debtload is looking increasingly unlikely despite the IMF’s wishes.
With so many conflicting headlines emanating from this week’s Eurogroup meeting on Greece, the clearest conclusion is that there is complete disagreement not only on what needs to be done to support Greece, and when, but also how to go about it. The potential for anything meaningful therefore looks remote. Particularly since at Wednesday’s German Bundestag meeting on the 2013 budget, Merkel only discussed a cut in interest rates on the bilateral loans and a €10 billion EFSF-financed bond buyback programme. While not impossible, it is hard to see how she can agree to something greater than this next week given it wasn’t discussed in parliament.
So anything but the softest form of OSI still seems to be ruled out by Germany, and if, as reported by the FT, the Bundesbank isn’t willing to disburse its profits, it’s hard to see why other central banks would be willing to do so.
As for the debt buyback plan – on paper it may sound great : Greek bonds have been trading at around 25% of face value so spend €10 billion and buy back €40 billion face value, reducing the nominal debt load by €30 billion or 14% of GDP. Which would be a good start (although not decisive given debt levels in our opinion), but skips over a few minor details – one of which being the fact that bonds no longer trade at 25. Oddly enough, they’ve staged a rather decent rally since the buyback plan was announced… and what’s the incentive to sell? Or are we now talking about coerced bond purchases for 25% of notional, in EFSF bonds again maybe? It seems a small step from current rhetoric to a second private sector debt restructuring – at which point, maybe the 25% also comes into debate. Greece may well be the “exception” a second time sooner rather than later on current trends…
Indecision costs the whole of the euro area
The apparent inability of the euro area to reach any sort of decision on how best to address Greece’s debtload is far more negative in our view than just its impact on Greece.It speaks, once again, in our view, of the inability for progress at the euro area level in the absence of market pressure. The ECB’s (unactivated) OMT backstop has worked extremely well until now, but the ability of it to continue to do so without progress on the political side is limited in our opinion.
As we head into year-end,European storm clouds are building. We still expect Greece to get its funding, but Europe looks increasingly unlikely to grasp the opportunity to take Greek funding issues decisively off the European agenda for 2013. A decision on banking union looks more bogged-down by the day, with the EU budget at risk of going in the same direction, and then there’s Spain...
This week’s election in Catalonia is likely to create further political noise rather than a real risk of secession as outlined by our economists: Catalonia’s choice, 19 Nov 2012.
Our view (hope?) that Spain might ask for support in November, in advance of year-end, looks destined to be incorrect. Since we believe that a Spanish request for support is inevitable, we see little market-positive reason for Rajoy to not to be pre-emptive in asking.
If it really is Spain’s decision when to ask, then market pressure does look increasingly necessary – which based on developments of the last few months could take some time.
This week Spain did another private placement, this time €3.27 billion bought by its social security reserve fund (the last few we believe were primarily bought by the banks). Sovereigns as we’ve often said, are sovereign, and have many means at their disposal to ensure buyers for their debt. The cost, however, is to further increase the correlation in the Spanish system, and hence systemic risk. If, on the other hand, and as we suspect is at least partially the case, the timing of a Spanish bailout request is a decision for the Eurogroup more generally, this begs the question of the advantage to the Eurogroup of a delay. If all countries are on board, there seems to be little to gain from waiting – particularly given the risks to a deterioration in the situation in Greece. And if not all countries are in agreement on the best approach for Spain (which given the situation with Greece, is a depressing possibility), this is clearly market-negative in our view. There is only so much the ECB can do without political support – as Draghi has frequently made clear.
Meanwhile, as illustrated in Exhibits 6 and 7, the private sector is voting with its feet:German exposure to the periphery continues to fall (down 56% from the peak to the end of September), with exposures to Italy and Spain in particular lower this year. As we highlighted in our publication on the negative sovereign-bank feedback loop, buying time, particularly when done through indecision, comes at a substantial cost. Without certainty or confidence in the likely path ahead, business has to act in accordance with the risks, and cross-border exposures to the periphery will continue to decline, with the resultant negative implications for growth and lending-market fragmentation. As Santander’s CEO said this week: while the Treasury may not need the Spanish bailout, the Spanish economy and firms do.
and compare dysfunction in europe to what may come to pass with our own dysfunctional political process concerning the Fiscal Cliff....
http://www.businessinsider.com/let-the-us-ride-over-the-fiscal-cliff-2012-11
Letting All Taxes Revert To 1990s Levels Will Fix The Deficit
The U.S. could slip back into recession, credit-rating agencies might downgrade the U.S. for political dysfunction, and the military and a host of government programs and agencies would face pretty drastic cuts — the threat of pain was the point of the "sequestration," after all.
But "some people, left, center, and right, believe careening over the cliff would be an affirmative good, a willful act of liberation, a step that is necessary to rationalize our tax code," says Daniel Gross at The Daily Beast.
"I've dubbed these folks the Thelma & Louise Caucus. And I count myself a member." Here, five serious reasons people are actually rooting for us to drive over the cliff:
1. The Bush tax cuts are wrongly skewed toward Wall Street"I'm not eager to see all the tax cuts expire" — like Obama, and a majority of Americans, I want taxes to stay lower for all but the wealthiest taxpayers, says Gross at The Daily Beast. "But I think the cliff does offer a rare opportunity to correct a historical error."
The Bush-era tax cuts set to expire "introduced all sorts of harmful wrinkles and distortions into the tax code, in ways that privilege passivity over labor." There's no reason capital gains and hedge-fund fees should be taxed at half the rate of the "wages for hardworking professionals."
But the people who benefit from those breaks have a loud, powerful voice in Washington. Once we go over the cliff, they'll have to use it to justify their special treatment. "Good luck to them."
2. Republicans can force Democrats to reform the tax codeSo far, "the only ones in Washington who advocate fiscal cliff-diving are liberal Democrats," says Marc Theissen at The Washington Post. "It's time for conservatives to join them." It's not only lower tax rates on the wealthy that expire, after all — "so do a lot of tax policies the Democrats support," like higher child tax credits and lower payroll taxes.
Letting those taxes lapse, too, "may be the only way Republicans can force President Obama and Senate Democrats to agree to fundamental tax reform," which is what the GOP wants. Besides, going over the cliff "would save Republicans from having to break their pledge not to raise taxes," and thus save the GOP brand. After all, "raising taxes and losing a fight to stop automatic tax increases are two different things."
3. The spending cuts, while crude, are good policyOddly, the man who convinces Republicans to take those no-tax-hikes pledges, activist Grover Norquist, seems untroubled by the looming cliff, too. After all, along with the tax increases come big drops in federal spending. "I'm for the spending cuts," Norquist tells The Daily Beast.
"Just let them take effect. My first preference, like most Republicans in the House, is the Ryan budget," which "lowers the tax rate, saves the same amount of money, and doesn't hit the defense budget as hard." But if Democrats insist on raising taxes on the rich — he doesn't think they will — at least government will still shrink. "The only thing worse than the sequester would be not reducing spending."
4. Letting all taxes revert to 1990s levels will fix the deficit"The long-term goal of our fiscal policy should be to reduce deficits," says Jonathan Cohn at The New Republic. Well, "that's not possible without raising taxes, and the place to start is on high incomes." The wealthiest earners can afford Clinton-era rates, and upping their tax rates "would not harm the economy, according to the best evidence out there."
But it also wouldn't be enough to solve our fiscal problems. The best way to make up the gap would be a federal carbon or consumption tax, "but since neither option seems to be viable right now, the next best thing might be to let all of the Bush tax cuts expire, so that everybody — not just the wealthy — go back to paying what they did during the Clinton era."
5. Foolish panic is a great investing opportunityLet's be honest: For all the scaremongering out there, "nothing bad is likely to happen at the beginning of January," says Jonathan Chait at New York. The cuts and tax hikes take place over a year, and they can be fixed retroactively. "What will change on Jan. 1 is bargaining leverage" — Democrats get much more — and that explains why Republicans "are desperately trying to convince America that this would lead to terrifying outcomes."
The most plausible downside of going over the cliff is that financial markets could panic. "It's possible! Markets are dumb." But that only means when a deal is reached, we get a rally. Right, a fix to this phony crisis is inevitable, but "if the market wants to panic," we'll gladly jump in, says Scott Phillips in Australia's BusinessDay. "When investors come back to their senses, either before or after the deal is done, we'll be glad we did."
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