Politicians, Guns & Euros
[Posted by Karl]
So, it’s been at least a few days since our last glimpse into the abyss, yes?
The Greek prime minister was today preparing for a tense showdown with the leaders of France and Germany after he announced shock plans to hold a referendum on his country’s emergency bail-out.
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If Greece rejects the austerity measures – part of a package to stop the sovereign debt crisis spreading, Europe faces being plunged into an economic catastrophe.
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In Greece yesterday, little was done to calm the nerves of politicians and financial markets as Athens announced extraordinary plans to sack its military leaders amid rampant speculation that it was trying to head off a coup d’etat.
‘It’s all over. The government is about to collapse,’ said one Greek official. Greece’s former deputy finance minister Petros Doukas agreed: ‘The **** has hit the fan.’
Tyler Cowen is probably right to write the decision to hold a “referendum” is a decision to turn down the deal altogether. Lefty Kevin Drum is probably right that “[o]ne way or another, Europe’s big countries have to decide whether to bail out Greece or whether to let them default and then bail out their own banking systems.” If Scott Summers is right, there will likely be blowback for Germany (and France). Then again, bailing out German and French banks may well be more politically acceptable in Gremany and France than bailing out Greece.
Reminder to GOP presidential wannabes: This is not a hypothetical issue.
–Karl
Ding!
Karl (f8195e) — 11/2/2011 @ 12:06 pmIs the headline a Warren Zevon reference?
And his hair was perfect.
Mitch (341ca0) — 11/2/2011 @ 12:07 pmMitch.
Yes, thanks to Petros.
Karl (f8195e) — 11/2/2011 @ 12:10 pmSo Petros Doukas walks up behind Sarkozy, wraps his arm around in front of him and whispers in his ear… “psssst… buddy… do ya wanna buy a watch?”
ColonelHaiku (fbf87d) — 11/2/2011 @ 12:21 pmYou know calling a referendum that you know can’t win, and then trying to sack the military heads,
narciso (0fc95f) — 11/2/2011 @ 12:22 pmthat’s like trying to ‘pull the plug on Skynet’ steps you don’t take on general principle,
The sacking of the military heads is bizarre. The referendum I understand – it forces the Greek citizenry to either assent to the package or assent to withdrawing from the euro, and absolves PASOK of responsibility for the negative consequences of either.
The only plausible theory i’ve seen for the military sacking, though, is that the government was afraid of a coup attempt.
aphrael (5d993c) — 11/2/2011 @ 12:40 pmZee grill marks, zay are purr-fect!
daleyrocks (bf33e9) — 11/2/2011 @ 12:54 pm“Reminder to GOP presidential wannabes: This is not a hypothetical issue.”
Karl – Heh. I hope you are not suggesting that we need to bail out Europe again. WTF?
The outcome is certainly not hypothetical, but with all the struggles the U.S. has with its participation in transnational NGO’s, see the World Bank and IMF, why do we want to jump into a European debt restructuring, especially when they’ve told us to piss off?
daleyrocks (bf33e9) — 11/2/2011 @ 1:02 pmdaleyrocks,
No, I’m concerned about possible contagion. The people at US banks who know the CDS exposure to a Euromelt aren’t talking about it.
Karl (f8195e) — 11/2/2011 @ 1:04 pmThe problem for Greece is there’s no road forward.
Greek banks hold 1/4 of Greek public debt, something like $50 Billion.
Last night a newly minted 1 year Greek note paid 100%, whereas the US note would pay nearly 1%.
Greek depositers are using the bank as a check cashing service, there is no money.
Total Greek tax revenues thru December are 12 Billion euros, total loans to be redeemed 16 Billion. For a population of 16 million they have over 500K State employees.
You do the math of a 50% haircut.
France’s big 4 Banks hold the bulk of the rest of Greek debt. The banks have under 50% in collateral on reserve to cover all debt. Most of Morgan Stanley’s $39 Billion in EU debt is with the French.
Italy’s yield on 10-year bonds with 2 Trillion euro debt is 6.14%, US is down near 2.2%
Moody’s has already notified France that a Greek default will trigger a downgrade, likely two notches. Their banks have already been downgraded and are virtually nationalized already.
gary gulrud (d88477) — 11/2/2011 @ 1:52 pmIf the Frogs and the Boche 😀 don’t realize this themselves, and scream at their officials to do that, then they’re even bigger fools than I think they are.
Let Greece fail. Make an example of them, so that Ireland, Italy, and Spain don’t get any ideas about what their creditors are willing to put up with.
IGotBupkis, Unicorn Entrepreneur (2fb1c2) — 11/2/2011 @ 2:04 pm11. The German Bundestag, a weak Senate, and the Constitutional Court have essentially put a roadblock up against any further capitulation.
Merkel risks open revolt mooting a better deal for the Greek or the French(Sarkozy was arguing to the last for a 21% haircut negotiated in July), et al.
The Greeks need 80% off just this year’s debt payments at bare minimum. Their only option, really, is to walk away and redenominate the drachma. In a few year’s time they can just deflate their currency and maintain domestic solvency.
gary gulrud (d88477) — 11/2/2011 @ 2:18 pmThe referendum announcement meant that last week’s “deal” wasn’t a deal. And the referendum announcement means that Greece will default. It just gives two more months to the connected to get their assets out of Greece before the default results in a conversion to drachma and devaluation of Greek’s assets.
The colonels will be running Greece by February.
SPQR (26be8b) — 11/2/2011 @ 2:20 pmAnd of course our old buddy Jon Corzine just wrecked his company betting that the Euro politicians would get it all sorted out in a suitably progressive manner.
I guess Greece gets to become the Zimbabwe of Europe, only with olive oil and shipping. Just wait until that piece of baklava goes for 150,000 Drachmas.
JVW (4d72aa) — 11/2/2011 @ 2:20 pmIt’s time to make the unpopular decisions, and cut the cords. Let’s see who has brains enough to do this.
IGotBupkis, Sailing the Economic Seas Betwixt Scylla And Charybdis (2fb1c2) — 11/2/2011 @ 2:21 pmRe: contagion, bond purchasers are aware central bankers have no solutions, they just don’t have anywhere but cookie jars and mattresses to stash their script.
gary gulrud (d88477) — 11/2/2011 @ 2:43 pm“The people at US banks who know the CDS exposure to a Euromelt aren’t talking about it.”
Karl – If the boneheads haven’t bailed on their exposure by now it’s their own fault.
It’s just one big incestuous circle over there in terms of who owns who’s sovereign debt.
Hemophiliacs, one and all.
daleyrocks (bf33e9) — 11/2/2011 @ 2:43 pmgary, daleyrocks,
US Banks have been dumping their sovereign debt pretty well. But I dunno how easy it is to dump the CDS. If I was a Big Bank and this was going on and I had dumped most/all of my CDS, I would be saying so. The silence bothers me.
Karl (f8195e) — 11/2/2011 @ 3:05 pmReminder to GOP presidential wannabes: Keep your powder dry and don’t let the Left Wing Media suck you in on “speculation”.
radioone (d7d7de) — 11/2/2011 @ 4:44 pmActually the German banks are in pretty good shape. It’s the French banks that are hanging out on Greece debt. The Germans have less at risk.
Cheshire Cat (a1fcca) — 11/2/2011 @ 4:53 pm“US Banks have been dumping their sovereign debt pretty well. But I dunno how easy it is to dump the CDS.”
Karl – It’s simple. You trade the CDS to some third world hell hole who wants non-correlated investments in return for carbon credits. Then you offload the carbon credits to guilty liberals.
Problem solved.
No charge this time.
daleyrocks (bf33e9) — 11/2/2011 @ 5:10 pmTheir only option, really, is to walk away and redenominate the drachma. In a few year’s time they can just deflate their currency and maintain domestic solvency.
And the water will all run uphill, by government order. In reality, there is no money in Greece. It will all be barter shortly. See also here.
Kevin M (563f77) — 11/2/2011 @ 7:37 pmIt is worth noting that George Papandreou is also President of the Socialist International, which makes him the titular head of Communists worldwide.
Why Germany and France are offering up MORE of other people’s money for Greece to waste is beyond me. Wouldn’t an invasion be cheaper?
Kevin M (563f77) — 11/2/2011 @ 7:41 pmLast night Greek 1-year yield 200%, tonight 225%.
gary gulrud (d88477) — 11/2/2011 @ 8:24 pmThe Euro is dead meat. Greece is only the first of the weak sisters to fall. The problem is that a common currency never made any sense from the start. This has got to scare the crap out of China, since the West is their market and the China bubble can’t survive when that market contracts.
BarSinister (5a3146) — 11/3/2011 @ 8:36 am