http://www.zerohedge.com/news/2012-12-05/greece-selective-default

Greece Is In Selective Default

Submitted by Tyler Durden on 12/05/2012 16:22 -0500

default

European Central Bank

Greece

Third Point

On October 22, we alone asked a very relevant question, which apparently nobody was able to answer:

Well, one entity did. S&P.

GREECE CUT TO SD FROM CCC BY S&P
- S&P CUTS GREECE'S LONG-TERM DEBT RATING TO 'SELECTIVE DEFAULT'
SD, by the way, stands for Selective Default. At least the acronym is not Selective Transitory Default: that would really summarize the situation.

In other words, Greece is technically default, and why? To make sure a few hedge funds have a great year and get paid on the Greek bonds at double their cost from 4 months ago. The Greek people just get a t-shirt that says "Third Point made a killing, and all i got was this louse Selective Default."

But the best news is that Goldman's European central bank branch is now delighted to accept defaulted, whether selectively or unselectively, Greek bonds as full faith and credit collateral of that multi-colored European currency.

and....

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_05/12/2012_473160

Minister warns IMF may opt out

Stournaras says that if the bond buyback program fails, the burden of the bailout will fall on the EU

By Sotiris Nikas
Finance Minister Yannis Stournaras has warned that if the ongoing bond buyback program fails, no one can predict what will happen at the December 13 Eurogroup meeting, when eurozone finance ministers are due to convene to assess the process that is meant to reduce the country’s debt. At the same time, international hedge funds are split as to how they will tackle the issue.
Speaking on Skai TV late on Tuesday night, Stournaras stressed the importance of the project, saying, “It must succeed.”
He added: “Who knows what will happen then after December 13, what measures will be taken afterward? The International Monetary Fund has committed itself to participating [in the bailout] provided that the buyback is successful. The truth is that I have no doubt about Europe, that it will do everything possible. But if the IMF stays out, that will generate centrifugal powers in certain eurozone member states.”
Stournaras is scheduled to meet again on Thursday with Greek bank representatives, ahead of Friday’s 7 p.m. deadline for offers.
All major banks have planned general meetings for tomorrow to decide what to do. Stournaras noted that Greek lenders have already made plans for bigger losses from the bonds than what the state’s proposal provides for.
Meanwhile hedge funds have three different strategies in their approach to the bond buyback proposal.
In a conference call conducted yesterday by investment bank Exotix it became clear that hedge funds were unable to agree on a common policy, as some are determined to participate in the buyback because they are set to reap significant gains from the state’s offer.
Other funds prefer to keep their Greek bonds in their portfolios as they believe that the buyback program will succeed and bond prices will rise.
Finally, there also are some funds that intend to participate in the program by offering only a part of the bonds they hold, and not all of them.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_05/12/2012_473165

Liquidation of banks to cost 4-5 bln euros

By Evgenia Tzortzi

The process of dissolution and liquidation of local banks that do not constitute a risk for the Greek credit system will require between 4 and 5 billion euros, the president of the Hellenic Financial Stability Fund (HFSF), Panayiotis Thomopoulos, estimated on Wednesday while speaking about the credit sector’s planned concentration.

These banks will not be recapitalized, but will instead follow the recipe preferred by the Bank of Greece. i.e. their split into a “good” and a “bad” bank, as in the case of ATEbank. The healthy part will then be sold at auction, with the likely participation of the three systemic groups of National (including Eurobank), Alpha and Piraeus.

Addressing a conference titled “The Future of Banking in Greece,” Thomopoulos stressed the need for the immediate disbursement of 10 billion euros out of the 25 billion penciled in for the banks’ recapitalization so that they reach the required level of 9 percent in the assets-to-loans ratio index.

He went on to estimate that state-owned Hellenic Postbank will require between 3 and 4 billion euros, taking up most of the funds required for the non-systemic banks.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_05/12/2012_473134

PPC waiting to hear if it should still collect property tax

Sources at the Public Power Corporation said on Wednesday that they are waiting for instructions from the Finance Ministry regarding the collection of the emergency property tax.
A first instance court ruled on Tuesday that it is illegal for the tax, which was introduced last year, to be levied via electricity bills.
PPC is waiting to hear from the government whether it should continue to collect the tax.
In an interview on Skai TV on Tuesday, Finance Minister Yannis Stournaras said that the government would appeal the court ruling.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_05/12/2012_473069

Stournaras: Major tax evasion offenders could face time behind bars

The existence of an ongoing dialogue between the coalition government’s three parties in view of reaching an agreement regarding a new draft tax code was highlighted by Finance Minister Yannis Stournaras during a meeting with Greek President Karolos Papoulias on Wednesday.
“We are doing our best in order to work in favor of those on lower incomes,” said Stournaras.
He also noted that allowances for families with one or two children will be based on income criteria.
With regard to cases involving major tax evasion, Stournaras noted that the government was considering prison sentences which would not be suspended.
The minister reiterated that a new, “mini” tax bill will be submitted to Parliament by December 11, while a bigger one will reach the House by April next year.

http://ransquawk.com/headlines/spain-would-ask-for-bailout-if-given-guarantee-on-yields-according-to-an-official-05-12-2012

http://www.testosteronepit.com/home/2012/12/4/serial-government-defaults-in-the-eurozone.html

At their meeting on Monday, Euro Group finance ministers had some hot topics to stew over. There was the thorny issue of who’d replace Euro Group President Jean-Claude Juncker, who has had it with this zoo—”I no longer have any illusions about Europe,” he’d muttered earlier [The Euro Will Blow Up Europe Instead Of Bringing It Together]. The bailout of Spanish banks was finalized; €39.5 billion would be transferred next week, a down payment. Primary beneficiaries: German and French banks.

And the new bailout of Greece got some finishing touches. The mechanics had already been decided. Interest rates would be lowered. There’d be no interest payments for the first ten years. Times to accomplish the austerity goals would be stretched out. Profits on Greek debt held by the “official sector,” as it’s called in the jargon of the euro bailout mania, would be repatriated. And so on. It was one heck of a sweet deal for Greece.

It followed the bond swap last March that had already whacked private sector investors with a 74% haircut on €206 billion in bonds. The first sovereign default in the Eurozone, albeit a “voluntary” one. It set the tone. Greek Finance Minister Evangelos Venizelos proclaimed afterwards in his victory speech: “We owed it to our children and grandchildren to rid them of the burden of this debt.”

Alas, private sector is a rubbery term in the Eurozone. Most of the bondholders that lost their shirts were banks, including banks in Greece, Spain, and Cyprus—and they’re now getting bailed out by the official sector. Their losses from the private-sector haircut are landing on the lap of the taxpayer.

Now the Eurozone’s second sovereign default is underway. The new bailout package for Greece includes a loan of €10 billion with which to buy back some of its bonds at a hefty discount from private sector investors. The process has started. If Greece ends up paying 34% of face value, it could buy back about €28 billion in old bonds. In this manner, it would for all practical purposes default on €18 billion. The deal would also roll €10 billion from the private sector to the official sector.

A few hedge funds that bought this stuff for cents on the euro stand to make a killing. But the Greek and Cypriot banks that are losing a fortune on this deal are the very ones that are already getting bailed out. Hence their private-sector losses from the buyback deal are rolled over to the official sector [The Bailout Of Russian “Black Money” In Cyprus].

After this transpires, almost all of Greece’s debt will have been transferred to the official sector, spread over the EFSF bailout fund, the IMF, the ECB, the national central banks of the Eurozone including the Bank of Greece, and the EU. And just when the official sector is up to the gills into Greek debt, but not a minute before, German Chancellor Angela Merkelannounced the big haircut, the one that politicians have been denying for years: the official sector would write off a big chunk of this debt, starting in 2014. Greece’s default will be complete.

A sweet deal for Greece. And taxpayers elsewhere now know, rather than having to guess. This cements the principle of piling private-sector losses on the public sector, while claiming that it won’t cost anything, or at least not much ... until the real costs seep from the woodwork.

Now Portugal wants the same deal. So does Ireland. And Cyprus. Spain is thinking about it. The can has been opened: last week, Portuguese Finance Minister Vítor Gaspar remindedhis colleagues of the EU summit in July 2011—when the Eurozone decided explicitly that all countries to be bailed out would be offered equal terms and conditions. That principle of equal treatment, he said, was also valid for Portugal and Ireland. Then during the Euro Group meeting, Portugal presented its demands.

Dutch Prime Minister Mark Rutte wasn’t amused—and made his voice heard in an onslaught of interviews. There should be a way for Greece to leave the Eurozone, he said. And haircuts for official sector creditors? Not a good idea. Out of principle. “That would send the wrong signal to other countries that have debts ... like America” [read... The Relentless Eurocratic Power Grab].

Juncker too tried desperately to stuff some of the worms back into the can. “I don’t believe that the Euro Group is prepared to let these countries have equal treatment,” he said. And German Finance Minister Wolfgang Schäuble claimed that Greece was a special case. “For Ireland and Portugal, which are in the process of returning to the markets step by step, that would be a catastrophic sign,” he said. That’s how things start out in the Eurozone.

Every country in the Eurozone has its own set of big fat lies that politicians and eurocrats served up to make the euro and subsequent bailouts or austerity measures less unappetizing. Like in 1999: “Can Germany be held liable for the debts of other countries? A very clear No!” said the CDU, the party of Chancellor Merkel. Read.... Ten Big Fat Lies To Keep The Euro Dream Alive.

Spain would ask for bailout if given guarantee on yields, according to an official

- Germany signaling doesn't want Spain bailout.
- No-bailout scenario in 2013 would be bad for Spain.

- Official says if they guarantee the risk premium would be kept 200 basis points lower, it would ask for a bailout tomorrow.

Update details:

- Earlier in the year, it was reported that Spain wants the ECB to guarantee a 200bps spread if it seeks a bailout, currently spread is at 397bps.
- Spain is still resisting asking for aid, a prerequisite to trigger the ECB’s Outright Monetary Transactions program (OMT).

Reaction details:

- No immediate reaction observed as Spain has been resisting asking for aid even though the ECB has reiterated its readiness to buy bonds via the OMT.

and.....

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_05/12/2012_473066

Greek banks set Friday board meetings to decide on buyback

Greek banks will decide on Friday whether to take part in a bond buyback that is crucial for the country's debt sustainability, two banking sources told Reuters on Wednesday.
Greek banks' participation is key for the success of the plan, under which Athens aims to spend 10 billion euros of borrowed money to buy back bonds far below their nominal value, thus cutting its debt by a net 20 billion euros.
Greek lenders, which hold an estimated 17 billion euros of bonds out of the 63 billion eligible for the buyback, are expected to take part in it because they depend on bailout funds that Athens stands to receive after successful completion of the buyback.
"All banks will hold management board meetings on Friday,» one senior banking official told Reuters on condition of anonymity. A second official confirmed this. Both declined to say whether lenders would take part in the plan.
Friday is the last day in which Greece will accept investors' bids. On Thursday, senior Greek bankers will meet finance minister Yannis Stournaras to discuss the plan. Stournaras said last week it was Greek banks' «patriotic duty» to make sure the buyback succeeds.
Despite the better than-expected terms Greece offered on Monday, some analysts said it remained to be seen whether the buyback would be successful.
The range set by Athens varied from a minimum of 30.2 to 38.1 percent and a maximum of 32.2 to 40.1 percent of the principal amount, depending on the bond maturities of the 20 series of outstanding bonds.
The bond buyback is part of a broader debt relief package worth 40 billion euros, agreed by Greece's euro zone and International Monetary Fund lenders late last month.

http://www.ekathimerini.com/4dcgi/_w_articles_wsite2_1_05/12/2012_473034

Hedge funds hold out for more from Greece

Hedge funds are preparing to resist Greece's attempt to cut its debt by holding out against a government bond buyback in the hope of bigger gains further down the line.
Greece had to offer a higher price than expected at a 10 billion euro buyback on Monday after hedge funds buying bonds pushed prices higher.
Resisting the urge to bank a quick profit, hedge funds will rely on the fact many bondholders will tender their holdings in the buyback. That will leave Greece with less debt, underpinning the value of what remains.
Some managers are now convinced that international lenders will do whatever it takes to keep Greece in the euro, improving the chances of payouts to bondholders.
Hans Humes, chief investment officer of New York-based Greylock Capital, said he planned to hold onto shorter-dated bonds, tender his long-dated Greek bonds in the buyback and then buy more shorter-dated debt, keeping the size of his positions in the country's debt about the same.
"Where else are you going to get such a great yield in the short end?» he said. «There is nothing else as good as this from a risk-reward perspective in Europe right now.
"They are well on their way to managing the (economic) situation. After this transaction, I think Greece is going to have a lot more people looking at (buying) their bonds."
Others said the buyback had put a floor under the price and limited the downside while still offering potential future gains.
"We may tender at the higher end of the range but have not decided yet,» said Julian Adams, CEO at Adelante Asset Management. «(There) does not seem to be much downside in not participating."
Hedge fund holdouts are unlikely to prevent the buyback from getting over the line, according to Nomura analysis, because of participation from banks. Hedge funds were estimated to hold up to 25 billion euros out of the total 63 billion in private creditors' hands.

Funds are wary of disclosing whether or not they will accept the buyback for fear of weakening their positions. Many will be hoping others will take up the offer, increasing the potential payout for themselves.
Those that do hold out may take comfort from Greece's about-face in May when it paid in full the holders of one bond who rejected debt exchange in February. The government had said at the time of the offer in March that anyone who rejected it would get nothing.
Funds will also be buoyed by legal safeguards they now enjoy as bondholders. Under Greece's 206 billion euro restructuring in March, old Greek law bonds were traded in for new bonds issued under English law, which offers investors more protections.
Managers are also getting excited about court rulings in the long-running legal battle between Argentina and holdout creditors, including U.S. hedge fund Elliott Management, which have said Argentina must pay holders of restructured bonds and holdouts simultaneously.
"I think you will look back in two or three years' time on this crisis and the Argentine U.S. court decision will prove to be a very, very interesting juncture,» said Lee Robinson, founder of Altana Wealth. «It potentially affects many countries and trillions of dollars of bonds (if they default)."
Robinson, who bought Greek bonds due 2042 at 20 percent of face value, would not say whether he will take part in the buyback. The Monaco-based manager said: «All the English law bonds have been paid at par so far. It is very difficult to bully bondholders under English law."
Greece has not specified the value of bonds it hopes to buy back, but if it spends the full 10 billion euros at an average price of 34 percent it can buy 28 billion euros worth, Nomura economist Dimitris Drakopoulos said in a note.
With Greek, Cypriot and EU state banks almost certain to tender close to 20 billion euros of their holdings, getting hedge funds to tender another 8 billion at the higher prices «seems a reasonable and likely outcome», Drakopoulos said.
Many of the hedge funds built up positions when Greek bonds were as low as 11 cents on the euro after the national election in June when the country looked close to exiting the euro.
Those worries have since receded, sparking a rally in the bonds and netting funds who got in early a 200 percent gain should they participate in the buyback.
Funds refusing to participate in the buyback are betting that the smaller amount of private debt left over will rise in price and they are less likely to face future losses.
After the buyback, around four-fifths of the country's debt will be held by the official sector, and Greece will have the longest duration bonds globally at very low interest rates, reducing refinancing risks, one hedge fund manager said.

"One could say that as the PSI (private sector involvement) halves, the small group left standing could be paid out on better terms,» Sohail Malik, head of special situations at asset manager ECM said.
"But the worst case is that because the PSI is so small, policymakers decide to haircut you completely and tell you that '20 cents is your offer, take it or leave it' because you are not a significant holder."

http://www.guardian.co.uk/business/2012/dec/05/eurozone-crisis-ireland-austerity-budget

Finland slips into recession

Finland has become the latest eurozone member to slip into recession.

The country, one of four left in the eurozone with its AAA rating intact, said GDP fell by 1.2% year on year in the third quarter, following a revised 0.2% decline in the previous three months.

Finland's exports have been hit by the eurozone crisis, but one of its key companies, mobile phone group Nokia, has lost market share to the likes of Apple and Google.

Nokia headquarters in Espoo, Finland. Photograph: EPA/Markku Ojala

1.20pm GMT

Greek finance ministry officials have reacted furiously to the banks' announcement this morning that they would decide on Friday whether to back the bond buying plan.

They told our Athens correspondent Helena Smith that an extension to the buy-back operation is now definitely on the cards:

"What do they mean they will decide on Friday? They've had had all week to think about this. Have they not given it any thought?," asked one well-placed official. "We will now have to see [following this announcement] whether the whole process will have to be prolonged which may well be the case."

Berlusconi said to be considering forcing early Italian election

Over in Italy, and Silvio Berlusconi is stirring it up again.

According to La Stampa (via Open Europe) Berlusconi plans to discuss at a lunch with party members today whether to withdraw support from prime minister Mario Monti's government and possibly force an early election.

The paper also says the country's new draft electoral law will not be submitted to the senate today, as planned, because of disagreements between the various parties.

11.30am GMT

German bond auction success

More bond auctions, and Germany's has - predictably - been a success.

In its last issue of the year, it sold €3.3bn of two year Schatz notes at a yield of -0.01% - a sign investors are still prepared to suffer negative interest rates for security amid the eurozone crisis and, increasingly, worries about the US fiscal cliff.

Meanwhile:

11.11am GMT

Eurozone service sector edges up in November but still contracting

Earlier, a eurozone service sector survey also painted a picture of continuing decline.

Markit's eurozone services PMI index came in at 46.5 in November. That was better than the initial estimate of 45.8 and an improvement on October's figure of 45.7. But it is still way off the 50 level which would signal growth. Annalisa Piazza at Newedge Strategy said:

Looking at the biggest EMU countries PMIs, we clearly see that the upward revision is fully explained by a substantial correction in the German Services PMI (up to 49.7 from 48 initially estimated). Other EMU countries' PMI were extremely sluggish over the month.

The uptick [from October] is good news as it might be a sign that activity has bottomed out in the third quarter. Nevertheless we see no signs of improvement that suggest that the EMU economy might recover any time soon. Further contraction in GDP remains our baseline scenario at least until the first quarter of 2013.

10.39am GMT

Eurozone retail sales fall 1.2% in October, biggest fall since April

Retail sales volumes in the eurozone dropped by 1.2% in October compared to the previous month, the biggest fall since April as the economic woes continue to bite.

Economists had been expecting a 0.1% fall, and on top of that, September's figure was revised down from a 0.2% fall to a 0.6% decline.

The year on year drop was 3.6%, compared to forecasts of a 0.8% fall.

So much for hopes of a consumer led recovery from the downturn. Howard Archer at IHS Global Insight said:

A 1.2% plunge in retail sales volumes in October fuels concern that consumer spending will be very weak across the Eurozone in the fourth quarter and will drag down GDP.

It is notable that spending on non-food products fell by 1.4% month-on-month in October, which suggests that consumers were particularly wary of making discretionary purchases. There were also declines of 0.8% month-on-month in sales of food, drink and tobacco, and 0.1% month-on-month in sales of automotive fuel.

Overall Eurozone retail sales were dragged down in October by a 2.8% month-on-month drop in Germany, while there was also another marked decline in Spain (1.2%) following the VAT hike at the start of September.

The prospects for consumer spending in the Eurozone look troubling in the near term at least given very low consumer confidence, high and rising unemployment, generally muted wage growth and tightening fiscal policy in many countries. The only really good news for Eurozone consumers is that consumer price inflation fell back to a 23-month low of 2.2% in November from 2.5% in October, which will help purchasing power.

10.23am GMT

Spain raises €4.3bn in bond sale but total disappoints

Spain has successfully raised €4.3bn, but not the full €4.5bn it wanted, while the price it paid is still high, ahead of any bailout request from the country.

The country sold €1.1bn of ten year bonds at 5.29%, down from 5.458% in October's auction. The bond was covered 2.3 times, up from 1.9 times in October.

Its 2015 bond raised €2.1bn at a yield of 3.39% (3.61% in November), with a lower cover of 2 times (from 2.1 times),

It sold €1bn worth of 2019 bonds with a yield of 4.669% and was 2.5 times covered.

In the market, the yield of Spanish ten year bonds have edged up to 5.366%.

RIA Capital Markets strategist Nick Stamenkovic told Reuters:

A bit disappointing they didn't manage to raise the full amount...that caused a bit of a correction in the market.

The sheer scale of issuance next year and the lack of demand from domestic investors suggest to me that it's just a matter of time before Spain has to make an official bailout (request), but that's a story for early 2013.

Meanwhile Nicholas Spiro, managing director at Spiro Sovereign Strategy, questioned the recent rally in Spanish debt prices:

The rally... not only looks overdone but is becoming more and more detached from economic fundamentals. This is an entirely externally driven improvement in sentiment which is unsustainable given the severity of Spain's troubles.

The Rajoy government is bound to interpret the dramatic improvement in sentiment towards Spain as part of a reassessment of Spanish risk. The government is now even less keen on requesting a sovereign bail-out since it believes the markets are becoming less and less sensitive to a Spanish request for an ECB-backed bond-buying programme.

10.11am GMT

12.03pm GMT

Catharsis Ours

Wednesday, December 5, 2012