Greece

New European Bail Out Announced - Greek Debt Gets a HairCut

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We have another Eurozone bail out. The Euro Summit has released a 15 page statement (pdf) overviewing the agreement. The plan was ratified by all 17 Member States of the euro area.

First, there is a haircut on Greek debt, which while pretending to be voluntary, the volunteer or else threat behind it would allow a complete Greek default, where bond holders would get nothing and banks would probably be ruined.

We invite Greece, private investors and all parties concerned to develop a voluntary bond exchange with a nominal discount of 50% on notional Greek debt held by private investors. The Euro zone Member States would contribute to the PSI package up to 30 bn euro.

The plan is to reduce Greek debt to 120% of GDP by 2020 and is about €100 billion reduction with yet another €100 billion in additional aid.

Guess What Portugal, You're Junk

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Portugal was just downgraded by Moody's to junk status:

Moody’s cut its rating on Portugal’s long-term government bonds to a non-investment-grade rating of Ba2 from Baa1 and said the outlook was negative, suggesting more downgrades lie in store.

The ratings agency cited the risk that Portugal will need a second bailout before it can tap the bond markets again, and that private sector lenders will have to share the pain.

It also warned that Portugal might fall short of the financial targets it worked out with the European Union and the International Monetary Fund under the terms of its bailout because of the “formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system.”

Greece was told by S&P that their new bail out plan, simply because they are rolling over debt to a longer term repayment schedule, is a sovereign default de facto.

Even the United States has been scolded and threatened by credit rating agencies.

One of the big fears is the European crisis spreads and creates contagion. Seems the credit ratings agencies are determined to make that happen.

Greece Downgraded Again, Credit Default Swaps Soar

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Greece has been downgraded to CCC, a drop of three credit rating grades, by the almighty S&P credit ratings agency.

Greece had its credit rating cut three levels by Standard & Poor’s, which branded the nation with the world’s lowest debt grade and said a restructuring looks “increasingly likely.”

The move to CCC from B reflects “our view that there is a significantly higher likelihood of one or more defaults,” S&P said in a statement today. “Risks for the implementation of Greece’s EU/IMF borrowing program are rising, given Greece’s increased financing needs and ongoing internal political disagreements surrounding the policy conditions required.”

The problem now is soaring credit default swaps:

Credit-default swaps on Greece, Ireland and Portugal surged to records on concern European governments’ struggles to resolve the deficit crisis will threaten their ability to pay their debts.

Swaps on Greece jumped 47 basis points to an all-time high of 1,610 as of 5:30 p.m. in London after Standard & Poor’s downgraded the nation, according to CMA. Contracts on Ireland soared 27 basis points to 740, Portugal climbed 22 to 764 and the Markit iTraxx SovX Western Europe Index of swaps on 15 governments jumped 7 basis points to 218, approaching the record 221.75 set Jan. 10.

Remember those from the financial crisis? Credit default swaps are insurance policies, anyone can buy, which pay out when a nation defaults.

Greece loses, they win. The problem is those who issue CDSes will have to pay out. Remember AIG?

It Would Hurt the Banks....

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The latest request to restructure Greece's debt has been denied. with a quote from the ECB that should be classic:

A Greek debt restructuring is not the appropriate way forward -- it would create a catastrophe” because it would damage the banking system, ECB Executive Board member Juergen Stark said today in Lagonissi.

Look at this quote on their demand to privatize:

“Privatization makes a real difference,” said Poul Thomsen, head of the IMF’s Greek mission, which is in the process of reviewing the country’s progress on the bailout conditions. “If targets can be met, it will make a change to debt sustainability.”

Oh really? And that is why the US deficit is so small today, or other nations who privatized?

Seems The Greece Prime Minster, George Papandreou, is all for denying Greece any debt restructuring as well.

Greece must avoid debt restructuring and push on with budget cuts and privatisations to overcome its debt crisis, the country's Prime Minister George Papandreou and senior ECB officials said on Saturday.

Papandreou also said:

Henceforth, the European Union will escort Greece's privatisation programme as if we were conducting it ourselves

Greece Downgraded. EU Looks to Ban Sovereign Credit Default Swap Speculation

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Greece has been downgraded by Moody's:

Moody's slashed Greece's credit rating by three notches on Monday due to an increased default risk, raising the specter that the distressed euro zone sovereign may have to restructure its debt, perhaps before 2013.

The move increased pressure on euro zone leaders to ease repayment terms on bailout loans to Athens, just as Germany and its allies seem to have turned their backs on more radical steps to help it reduce its debt through bond purchases or buy-backs.

Moody's Investors Service downgraded Greek debt to B1 from Ba1 -- lower than Egypt -- and said it may cut further, drawing an indignant protest from the Greek Finance Ministry.

This downgrade caused Greece's Credit Default Swaps to hit a record high:

  • Five-Year CDS On Greece Hit 1035BPs Intraday, Above Record Close of 1032BPs
  • Cost Of One-Year CDS On Greece Rises 6.1% - Markit
  • $476 Mln New CDS Traded On Greece In Week Ended Feb. 25 - DTCC

The cost to insure EUR10 million of Greek bonds for five years spiked 5.3%, or $52,000 a year,

Meanwhile the EU just did something completely practical, they just voted to ban CDS speculation:

The European Parliament voted Monday to stop investors from buying insurance for government debt if they don't own the underlying bond, as it seeks to fight financial speculation.

Greece Calls Out IMF

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Greece is growing a spine. Seems the EU and the IMF are demanding Greece sell off their public assets, and in response to these demands, Greece said:

"The behavior of the representatives of the EU, IMF and ECB during yesterday’s press conference was unacceptable,” government spokesman George Petalotis said in a statement today, referring to the European Central Bank. “The only agent responsible for these decisions is the Greek government. We take orders only from the Greek people.”

Associated Press:

It was the first time the government has publicly struck back at the IMF and the European Union, which rescued Greece from bankruptcy but at a price that many Greeks consider too harsh.

The IMF, the European Central Bank and the European Commission delegation said Greece must privatize euro50 billion ($68 billion) in state assets and speed up structural reforms in the next few months to keep the country's troubled finances afloat. The IMF representative also said some of the frequent demonstrations against the Greek government's reforms were being carried out by groups angry at losing their "unfair advantages and privileges."

Just incredible and good for Greece. The IMF is pushing their austerity program, which is privatization and reductions in pensions, social safety nets for workers, who I guess are those of unfair advantage and priviledge.

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