US Avoids Debt Default - For a While

Bloomberg reports that Congress has passed a two-year bipartisan budget plan that avoids a default on U.S. debt, increases spending on domestic and defense programs and ends months of turmoil among House Republicans.

The deadline was 3 November, as such political shenanigans took this up to the wire.

President Barack Obama has a bill that will extend U.S. borrowing authority until March 2017, after he leaves office.

Thus the can has been kicked down the road for a little while longer, and Obama's successor will have to deal with the financial mess that the USA is in.

Greece Defaults To The IMF

Greece has become the first developed country to default to the IMF.

Lagarde will act immediately, and will not delay reporting the default officially.

Cyprus To Default

According to Cyprus Finance Ministry Secretary Christos Patsalides Cyprus is going to default within days unless it receives Euro300BN.

Oddly enough there are some people who have been taken by surprise by this development.

I don't understand why, in August I wrote the following:

"Cyprus has barely managed to sell Euro23.1M of government bonds.

It achieved a "bid to cover ratio" of 1 (ie there were only just enough "punters" prepared to buy them), at a yield of 7% (the last auction in June achieved a yield of 6.25%).

A yield of 7% is "the point of no return"; it is the level at which Greece, Portugal and Ireland went with their begging bowls to others asking for a bailout.

Why is Cyprus having problems?

Around 40% of its largest banks' exposures are to Greece."

Therefore this should come as no surprise to anyone.

Greece Faces D Day - Again

Today Euro of Greek bonds mature, next Friday 16th November a further Euro4BN mature.

Greece has issued, as it often does, a warning that if it dopes not receive bailout money by then it may default on those bonds.

However, Wolfgang Schaeuble, Germany's finance minister, is not so easily cowed by these threats; he told reporters yesterday that a decision on Greece next week "would be too soon".

Thus, as ever, the Eurozone crisis drags on as the politicians and bureaucrats dither over whether to continue to fund Greece or expel it.

EU Admits There Is No Plan

Finally the EU has admitted to what we have known all along, namely that it has no plan.

Specifically, in the case of Spain, there has been no request from the Spanish authorities for a bank rescue and that there is no EU rescue plan for Spanish banks.

I assume that this statement is meant to somehow reassure the markets?

Just remember, and repeat, as I have said many times before:

- There was no plan
- There is no plan
- There never will be a plan

Heigh Ho Heigh Ho It's Off To The Polls We Go!

Greece will go to the polls again, after days of coalition talks failed to produce agreement on a new government.

A caretaker government will be appointed on Wednesday.

The outcome of the election will determine whether Greece accepts or rejects the terms of the March bailout.

 

A rejection of the bailout terms will lead to a cut off of funding, and the expulsion of Greece from the Eurozone.

Ten Countries Most Likely To Default

Bottom 10 Sovereign CDS ranked by spread at end-March 2012

Name    5Y Spread   Change   % Change   Feb ranking
Cyprus     1183             4              0%             N/A
Portugal   1075          -90            -8%             2 (0)
Ukraine      859         101            13%            4 (+1)
Argentina   809           32             4%             3 (-1)
Venezuela  712          -13            -2%             5 (0)
Ireland       572          -27            -5%             6 (0)
Hungary    546            50           10%             8 (+1)
Egypt        544           -52            -9%              7 (-1)
Lebanon    459          -17            -4%               9 (0)
Spain         428           55            15%             16 (+6)

Source markit

Greece is not on the list, because it has already defaulted.

Greece's Ever Flexible "Deadline"

On 2nd April I wrote the following:

"Oh, that's easy, Greece has yet again postponed the "deadline" (from 4th April) to 18 April!"

Well I was a little ahead of events, and was two days out on the the date.

Today Greece has announced that it has indeed postponed the deadline for remaining bondholders to accept a debt swap, the new "deadline" is 20th April.

Ever flexible "deadlines" are the tools of fools, conmen and dreamers. 

Greece Postpones "Deadline" Again

Despite the threats and empty rhetoric from the Greek government, and others within the Eurozone, investors in Greek bonds issued under foreign law have not rolled over and acquiesced to threats; instead they have rejected Greece's attempts to restructure the debt at meetings held last week.

In 20 out of 36 meetings, bondholders either turned down the government’s proposal, adjourned the talks or failed to achieve a quorum.

What happens now?

Oh, that's easy, Greece has yet again postponed the "deadline" (from 4th April) to 18 April!

Oh, and by the way, there is a payment due today on some bonds relating to Greek railways.

Statement of The Eurogroup - Deconstructed

I have deconstructed today's statement of the Eurogroup, my comments are in blue.

30 March 2012
Statement of the Eurogroup

The stability and integrity of the Economic and Monetary Union have required swift and vigorous measures that had been implemented recently, together with further qualitative moves towards a genuine Fiscal Stability Union.

This is a lie, there have been no "swift and vigorous measures".

In order to further improve market confidence and in accordance with the agreement reached at the Euro Summit on 9 December 2011 and reiterated on 2 March 2012, we have reassessed the adequacy of the overall EFSF/ESM lending ceiling of EUR 500 billion which, given EUR200 billion long term commitments of the EFSF, currently entails a 300 billion maximum lending volume for the ESM.

We agreed on the following principles:

· The paid-in capital of the ESM will be made available more quickly than initially foreseen in the ESM Treaty, in respect of national procedures. Two tranches of capital will be paid in 2012, a first one in July, a second one by October. Another two tranches will be paid in 2013 and a final tranche in the first half of 2014. In line with the ESM Treaty, the payment of the capital will be further accelerated if needed to maintain a 15% ratio between the paid-in capital and the outstanding amount of ESM issuances.

Too little too late. Oh, and by the way, there is no real funding as yet for this or the EFSF.

· The ESM will be the main instrument to finance new programmes as from July 2012. The EFSF will, as a rule, only remain active in financing programmes that have started before that date. For a transitional period until mid-2013, it may engage in new programmes in order to ensure a full fresh lending capacity of EUR 500 billion.

· The current overall ceiling for ESM/EFSF lending, as defined in the ESM Treaty, will be raised to EUR 700 billion such that the ESM and the EFSF will be able to operate, if needed, as described above. As of mid-2013, the maximum lending volume of ESM will be EUR 500 billion. The combined lending ceiling of the ESM and the EFSF will continue to be set at EUR 700 billion.

· In addition EUR 49 billion out of the EFSM and EUR 53 billion out of the bilateral Greek loan facility have already been paid out to support current programme countries. All together the euro area is mobilising an overall firewall of approximately EUR 800 billion, more than USD 1 trillion.

Using old debts to boost the "firewall", an "interesting" form of creative accounting!

· Moreover, euro area Member States have committed to provide EUR 150 billion additional bilateral contributions to the IMF.

The euro area made substantial progress over the past 18 months to address the challenges stemming from the sovereign debt crisis.

No it hasn't.

Progress was notably made with regard to fiscal consolidation and growth enhancing structural reforms in a number of countries, the successful implementation of the adjustment programmes in Ireland and Portugal, the Greek PSI operation and the agreement on a second Greek programme.

The Greek Prime Minister has today stated that the country will need a third bailout. The Greek PSI has not gone according to schedule, and foreign law bondholders are still holding out.

Important improvements were made to improve the governance of the euro area through enhancements of the Stability and Growth Pact, the new macro-economic imbalances procedure, the Euro Plus Pact and the Fiscal Compact enshrined in the new Treaty on Stability, Cooperation and Governance in the Economic and Monetary Union.

Finally, robust firewalls have been established. This comprehensive strategy has paid off and led to a significant improvement of market conditions.

There are no robust firewalls, and market conditions have not improved.

All in all this statement is bullshit!

Juncker Talks Bollocks

Euro Group President, Jean-Claude Juncker, has just claimed that Greece's failure to make a timely repayment of their foreign law bonds that are not exchanged does not constitute default.

I see....

Oops! Greece Gets Its Dates Wrong

The PSI participation in foreign law Greek bonds was a meagre 69%. Greece has now extended the deadline for participation to April 4th.

Unfortunately, before then, on April 2nd there is a payment due on some bonds relating to Greek railways.

Was not the whole point of this exercise was for the swap to have been finalised so that bailout conditions were met before bills were due?

Oops!

Mr Panos Explains The Greek Crisis

Wheels Fall Off Greek Bond Swap

As the take up the foreign law bond swap in Greece has been less than expected (people who didn't have their heads in the sand never expected the take up to be high), Greece is now expected to push back the foreign law bond swap deadline from today's March 23 deadline.

"Ironically" Greece's listed banks have asked for an extension of 30 days to their March 31 deadline for reporting their 2011 results to assess losses resulting from the recently completed bond swap.

If at first you don't succeed, change the rules!

Rat Leaves The Sinking Ship

As the Greek Parliament votes on accepting the second bailout, markets are already factoring in the need for a third bailout (if Greece remains in the Eurozone).

As a portent of the future, Greece's Finance Minister, (Evangelos Venizelos) has left office today so that he can lead PASOK into the next general election.

The fact that he was meant to be managing the constitutional changes, necessary for the second bailout to stand a chance of working, appears to have escaped him!

Greece Under Foreign Occupation

Greece will have foreign financial experts, monitoring its "progress", in situ for at least the next two years.

Greece Is A Busted Flush - Greece Printing Its Own Euros

I have written on this site before that Greece is a busted flush. However, those of you who still doubt this, and cling to the hype spewed forth by the Eurozone that the second bailout will fix Greece may care to consider the following:

1 Greece is now printing its own Euros, because it has nothing left of value to offer the ECB as collateral for Emergency Liquidity Assistance (ELA)

2 Greece's unemployment rate rose to 20.7% percent in the last three months of 2011. Youth unemployment now stands at a staggering 40%.

3 Evangelos Venizelos (a rat leaving the sinking ship) has resigned as finance minister, thus undermining any attempts by Greece to push through the financial reforms it agreed to in exchange for the second bailout.

Greece is a busted flush!

The Second Economic Adjustment Programme for Greece - Deconstructed

Andrew Tyrie, chairman of the Treasury Select Committee, has called for Greece to exit the Euro and for the resources of the International Monetary Fund (IMF) to be significantly boosted to tackle future financial crises.

He is talking sense, based on the report "The Second Economic Adjustment Programme for Greece" issued today by the European Commission, Greece doesn't have a cat's chance in hell of recovering whilst it remains a prisoner of the Eurozone.

Here are a few choice cuts from the report, together with my deconstruction of what they mean for Greece:

"Greece made mixed progress towards the ambitious objectives of the first adjustment programme. Several factors hampered implementation: political instability, social unrest and issues of administrative capacity and, more fundamentally, a recession that was much deeper than previously projected."

In other words, the figures on which rescue "plans" are based are wrong and consistently unreliable.

"..insufficient progress was made in modernising revenue administration and expenditure control, and steps taken in the fight against tax evasion and the prompt settlement of payments to suppliers have remained far too timid."

Until Greece actually develops a tax system that does what it says on the box, it will not be able to fund itself. This of course won't happen, as the political system is corrupt.

"Greece has been unable to return to the markets so far."

As a result of the debt swap Greece will never be able to return to the markets for funding, as the markets will never trust it enough to lend it money again.

"The economy continues to contract and short-term growth rates have been further revised downwards. In 2011, the economy is estimated to have contracted by 6.9 percent."
The economy is screwed!

"Greece's medium-term economic performance will crucially depend on the implementation of structural reforms. These reforms, particularly those in the labour market, the liberalisation of several sectors and a number of measures to improve the business environment should help promote competition, spur productivity and employment growth and reduce production costs."

Based on "progress" so far, these reforms simply will not happen.

"Greece has to restore competitiveness through an ambitious internal devaluation, i.e., a reduction in prices and production costs relative to its competitors, as well as a shift from a consumption-led to an export-led economy. Since a strong increase in productivity takes time, an upfront reduction in nominal wage and non-wage costs is necessary."

Things are going to become a lot worse for the ordinary working/unemployed Greek citizen.

"Current projections reveal large fiscal gaps in 2013-14. Current projections reveal a cumulated fiscal gap in 2013-14 of 5½ percent of GDP. Therefore, substantial additional expenditure cuts will have to be announced and adopted by Greece in the coming months, in particular when Greece updates its medium-term budget (medium-term fiscal strategy or MTFS) in May 2012."

As noted, things are going to become a lot worse!

"Progress in privatisation has been slower than planned."

Another pipe dream that will never materialise!

"In a moderately optimistic but realistic scenario, if Greece meets the programme targets, the debt-to-GDP ratio will decline to about 117 percent in 2020. However, it will remain high for many years and, therefore, be susceptible to adverse domestic and global developments."

In eight years, what could possibly go wrong?

"Implementation risks will remain very high. The success of the second programme depends chiefly on Greece. It crucially hinges on the full and timely implementation of fiscal consolidation and  growth-enhancing structural reforms agreed under the programme. "

Not a cat's chance in hell of succeeding!

ISDA Confirms Greece Has Defaulted

After seven hours of deliberation, ISDA has finally reached a unanimous decision that the Greek bond swap represents a default; thereby triggering CDS insurance totalling $3.5BN.

Why waste seven hours discussing what was obvious to everyone else?

They could have saved time by simply reading my article yesterday!

Greece Defaults

As expected, the "voluntary" take up of new Greek bonds for old has not reached the 90% threshold necessary for it to be considered "voluntary".

85% of Greek holders of bonds (bound by Greek law) agreed to the deal (ironically the Greek Finance Ministry employees' pension fund was among those that did not agree to a "voluntary" participation), whilst only 69% of non-Greek debt (bound by English law) participated. Needless to say Greece has attempted to move the goalposts on the latter, by extending the period for participation to March 23 (yesterday they denied that they would do this).

Whatever the fiddles and fudges that Greece now attempts, the fact remains that the 90% threshold has not been reached and that CACs will have to be used; ie Greece has defaulted.

For form's sake Isda has announced that its determinations committee will meet at 1pm GMT today, to discuss a potential credit event in Greek CDS. 

After that the whole process will be mired in litigation.

Oh, and by the way, does anyone really believe the figures announced by Greece?

Only when they are fully audited by a genuinely independent person/organisation may we have any real faith in the numbers.

Here is a link to the full press release from the Hellenic Republic Ministry of Finance (for what it is worth).