Soros bets against Euro

[Jan Klimkowski]

Here's Ticker Forum's Karl Denninger's suitably fecaloid take on the implications of the ECB paying top price for Greek dung:

Greek Dog Squeeze Now Accepted At ECB

Unbelievable:

May 3 (Bloomberg) -- The European Central Bank joined the international rescue of Greece, saying it would indefinitely accept the country’s debt as collateral regardless of its country’s credit rating, underpinning gains in the bond market.

For the uninitiated this means that the ECB will accept DEFAULTED Greek debt instruments, should it come to that.

More bluntly, if Papandreou's dog drops a deuce in a box and he presents it to the ECB claiming that it's worth $10 billion, the ECB will in fact issue $10 billion in real, honest-to-God Euros against that box - no matter how badly it smells.

That prompted Christoph Rieger, co-head of fixed-income strategy at Commerzbank AG in Frankfurt, to say today’s announcement “leaves a sour taste with regards to the ECB’s long-term credibility.”

The ECB has no credibility to lose at this point as it has now documented that the Euro is worth nothing at all as a currency, since it may be debased at will by Greece through the offering of worthless debt instruments into the ECB's clearing and margining system.

The Euro is now free to descend toward zero, targeting in the intermediate term my Par price-point .vs. the dollar, and likely headed for well below that.

Congratulations Europe, you have now demonstrated that your central bank is and has been issuing dog turds disguised as Euro bank notes.

If Germany has an ounce of sense they will withdraw from the Euro and return to the Deutche Mark post-haste.

http://market-ticker.org/archives/2262-G...t-ECB.html

[Jan Klimkowski]

Here's Reuter's take on the mood in the Greek streets:

Greek unions to "intensify" struggle, extend strikes
.. Main public sector union vows to intensify struggle
.. President says crackdown on corruption needed
.. Greek way of life has ended, editorials warn
.. Bank shares drop despite ECB collateral move

By Renee Maltezou and Harry Papachristou

ATHENS, May 3 (Reuters) - Greece's main public sector union
vowed on Monday to step up its fight against austerity measures
by broadening strikes that will test the government and its new
deal with the EU and IMF.

The ADEDY union, which represents about half a million
public sector employees, condemned cuts in wages and pensions
and said it would stage a 48-hour walkout starting on Tuesday,
instead of the one-day strike it had planned for Wednesday.

"These measures are a disaster, they will lead to a deeper
recession or even bankruptcy. The government is raiding our
salaries and our pensions," Despina Spanou, a member of ADEDY's
board, told Reuters. "We will escalate protests, we will fight
these policies."

Prime Minister George Papandreou's government unveiled an
austerity deal with the European Union and International
Monetary Fund on Sunday that relies heavily on cuts in the
bloated public sector to reduce a swollen budget deficit.

In exchange, Athens is to receive 110 billion euros in
financial support over three years, a package aimed at calming
fears of a debt default and buying the country time to reinvent
its uncompetitive and debt-ridden economy.

Greece has a history of violent protests and the
government's ability to implement its draconian programme
depends heavily on how the public reacts to the new steps.

"Nobody can be sure how strong the reaction will be," said
Yannis Stournaras, head of the Foundation for Economic Resarch
in Athens. "But the Socialists' strength is that they control
the unions. No other party could pass such a tough programme."

Greek President Karolos Papoulias cautioned Papandreou on
Monday that he would struggle to win over the people unless pain
for average citizens was accompanied by a crackdown on
corruption, which cost the economy an estimated $1 billion last
year according to watchdog Transparency International.

"I am certain the Greek people will respond positively, but
they need to be convinced that justice will be done, that tax
evasion will be wiped out," Papoulias said.

"CRUEL AND INHUMAN"
Outside the presidential mansion where Papoulias and
Papandreou met on Monday, Sampsanis Ioannis, a 49-year old
doctor in a state hospital, said Greeks had had enough.

"I have 5 children, I work all day and I make 1,020 euros
net a month. The measures are cruel and inhuman, people cannot
stand it any more, they will revolt," he said.

Several hundred rubbish collectors marched through central
Athens behind a dozen garbage trucks, holding banners reading
"hands off our salaries" and chanting "parliament is where the
rubbish is".

Greek newspapers displayed a mix of resignation and outrage
at the new steps, which aim to slash the budget deficit to 8.1
percent of gross domestic product (GDP) this year, from 13.6
percent in 2009.

Centre-right newspaper Eleftheros Typos said the government
was telling Greeks that they must die in order to live,
describing the economic medicine it was dispensing as "more
harmful than the disease". Ethnos, a centre-left daily, said the
plans meant "asphyxiation" for the Greek people and a "violent
modernisation" for the economy.

There are precedents for the massive fiscal adjustment that
Greece is undertaking, but economists say the country faces a
tougher challenge because of its weak economy, which is expected
to contract by 4.0 percent this year and 2.6 percent in 2011.

The government's economic shock therapy could lead to
deflation, aggravating Greece's ability to cut its debt
mountain, and put huge pressure on the banking sector.

The European Central Bank pledged on Monday to accept even
junk-rated Greek bonds as security for loans, a move Finance
Minister George Papaconstantinou said ensured banks were
"absolutely shielded and secure".

But Greek banking shares <.FTATBNK> were trading 1.3 percent
lower on Monday.

Standard & Poor's downgraded Greek bonds to junk status last
Tuesday and Moody's could follow suit any day now. It said on
Monday it would conclude a review of Greece's ratings shortly.

http://uk.reuters.com/article/idUKTRE64222U20100503

[Jan Klimkowski]

Exit polls are suggesting that Merkel's party has lost its majority in North Rhine-Westphalia.

From Reuters:

May 9 2010

Chancellor Angela Merkel's centre-right coalition parties failed to retain their majority in a state vote on Sunday, an exit poll showed, robbing her government of a majority in the upper house of parliament.

An exit poll by ARD television put Merkel's Christian Democrats (CDU) on 34.5 percent and their Free Democrat (FDP) allies on 6.5 percent, short of a majority and leaving the make up of North Rhine-Westphalia's next government unclear.

The CDU and FDP have ruled in the state -- Germany's most populous -- since 2005, when they won 44.8 percent and 6.2 percent of the vote respectively.

Their loss of a majority in the state -- and as a consequence in the federal upper house -- means Merkel will have to rely on opposition parties for support for her policy programme, which includes tax cuts, health reform and extending the lives of some nuclear power plants.

But she really lost for promising German financial support for the Greek bailout.

[Jan Klimkowski]

Remember this:

German MPs suggest cash-strapped Greece should sell islands

Published: 4 Mar 10 13:47 CET
Online: http://www.thelocal.de/politics/20100304-25667.html

Greece should sell some of its uninhabited islands to raise cash to avoid bankruptcy, two German parliamentarians from Chancellor Angela Merkel's centre-right coalition suggested on Thursday.

"The Greek state must sell stakes in companies and also assets such as, for example, unpopulated islands," Frank Schäffler, a member of parliament for the pro-business Free Democrats, told the Bild daily.

Posted earlier in this thread here:
http://www.deeppoliticsforum.com/forums/...ostcount=8

Now it's coming to pass:

Greece starts putting island land up for sale to save economy

Desperate attempt to repay debts also driven by inability to find funds to develop infrastructure on islands

Thursday 24 June 2010

There's little that shouts "seriously rich" as much as a little island in the sun to call your own. For Sir Richard Branson it is Neckar in the Caribbean, the billionaire Barclay brothers prefer Brecqhou in the Channel Islands, while Aristotle Onassis married Jackie Kennedy on Skorpios, his Greek hideway.

Now Greece is making it easier for the rich and famous to fulfill their dreams by preparing to sell, or offering long-term leases on, some of its 6,000 sunkissed islands in a desperate attempt to repay its mountainous debts.

The Guardian has learned that an area in Mykonos, one of Greece's top tourist destinations, is one of the sites for sale. The area is one-third owned by the government, which is looking for a buyer willing to inject capital and develop a luxury tourism complex, according to a source close to the negotiations.

Potential investors also looking at property on the island of Rhodes, are mostly Russian and Chinese. Investors in both countries are looking for a little bit of the Mediterranean as holiday destinations for their increasingly affluent populations. Roman Abramovich, the billionaire owner of Chelsea football club, is among those understood to be interested, although a spokesman denied he was about to invest.

Greece has embarked on the desperate measures after being pushed into a €110bn (£90bn) bailout by the EU and the IMF last month, following a decade of overspending and after jittery investors raised borrowing costs to unbearable levels.

The sale of an island – or convincing a member of the international jet-set to take on a long-term lease – would help to boost its coffers. The Private Islands website lists 1,235-acre Nafsika, in the Ionian sea, on sale by private interests for €15m. But others are on offer by private owners for less than €2m – less than a townhouse in Mayfair or Chelsea. Some of the country's numerous islands are tiny which could barely fit a single sunbed.

Only 227 Greek islands are populated and the decision to press ahead with potential sales has also been driven by the inability of the state to develop basic infrastructure, or police most of its islands. The hope is that the sale or long-term lease of some islands will attract investment that will generate jobs and taxable income.

Told by the Guardian that such sales or leases were in prospect, Makis Perdikaris, director of Greek Island Properties, said that he would be unhappy at the prospect of any outright sale of state land: "I am sad - selling off your islands or areas that belong to the people of Greece should be used as the last resort," he said. But he was not necessarily against long-term leases: "The first thing is to develop the economy and attract foreign domestic investment to create the -necessary infrastructure. The point is to get money."

In its battle to raise funds, the country is also planning to sell its rail and water companies. Chinese investors are understood to be interested in the Greek train system, as they already control some of the ports. In a deal announced earlier this month, the Greek government also agreed to export olive oil to China.

After the socialist government of prime minister Geórgios Papandreou responded to the IMF bailout with draconian budget cuts, rioters took to the streets, costing three lives in May.

In the midst of the crisis, the German chancellor, Angela Merkel, delayed her support as she faced local elections and popular opposition to any public-funded help to Greece.

As strikes almost paralysed the country and hedge funds bet against the economy, German politicians called for Greece to start selling islands, historic buildings and artworks. It now appears that the Greek government has heeded their demands.

The City, where investors are increasingly shunning Greek investments, welcomed any island sales. "It's a shame if it has come to this but it does at least demonstrate that Greece is prepared to take all actions necessary to try and meet its obligations," said Gary Jenkins, a credit analyst at Evolution Securities.

Property prices have fallen between 10% and 20% since the May riots in Athens, as bad publicity has drawn visitors away, Perdikaris said.

"We have experienced a very slow booking season. Most tour operators offer hugely discounted rates," he said. Britons account for more than 60% of his company's property sales.

• This article was amended on 25 June 2010. The original heading - Greece puts its islands up for sale to save economy - went beyond what the story said. This has been corrected. A reference to Natsika has been amended to make clear this sale offer is private. More context has been added to a quotation from Makis Perdikaris, director of Greek Island Properties, to make clear that he was not expressing knowledge of existing Greek government sales of islands or island land.

http://www.guardian.co.uk/world/2010/jun...ve-economy

Every hour of every day we're bombarded by politicians and commentators telling us that There Is No Alternative (TINA) to "austerity measures".

It's precisely the same scam used to sell the War On Terror - in reality a war for profit, geopolitical control of resources and social control of the masses.

"Austerity measures" are also about profit for a tiny few at the cost of misery for many, geopolitical control of resources and social control of the masses.

Are ordinary people ever going to wake up?

[Jan Klimkowski]

The Greek govt issued emergency "wartime" orders to force strikers back to work.

The response of the workers was clear and unequivocal: :thefinger:

Greek police fire tear gas at striking truckers

Government issues emergency order as fuel shortages strand tourists and disrupt food and medical supplies

Helena Smith in Athens guardian.co.uk, Thursday 29 July 2010 13.07 BST

The stand-off between striking truck drivers and authorities in Greece intensified today hours after the government issued an emergency order to force protesters back to work.

With fuel shortages stranding thousands of tourists and disrupting supplies of food and medicines nationwide, prime minister George Papandreou resorted to emergency legislation, more usually used at times of war or great natural disaster, to end the walk-out.

But hopes of a return to normal were quickly dashed when riot police fired tear gas at thousands of truckers gathered outside the transport ministry this morning.

"The order is coming through to [drivers] but I have no idea how they are going to react to it," said Giorgos Stamos, a member of the truck drivers' union. "It is highly unusual that after just three days of going on strike we should be mobilised in this way."

The ruling socialists called for the mobilisation – the fourth time since the collapse of military rule in 1974 that such an order has been issued – as it became clear that Greece was facing a public health crisis because of the strike.

On islands, where fuel supplies have totally run out, tourists could be seen abandoning rented cars by the side of the road while yachts remained docked in harbours or drifted out at sea.

Under the order – which followed a plea by the Greek Tourist Association to stop the strike – authorities were given the go-ahead to requisition vehicles and services, with the owners and drivers of trucks being told they had to resume work or face stiff fines.

"To allow the strike to continue would threaten the normal functioning of health and welfare services and public order," the government announced.

The mayhem began on Monday when some 33,000 licensed truck drivers walked off the job in protest at government plans to open up the freight industry, one of many 'closed–shop' professions blamed for keeping the Greek economy isolated and uncompetitive.

The debt-stricken country is under intense pressure from the EU and IMF to make the changes – a condition of the €110bn (£92bn) of emergency loans it received from eurozone nations and the Washington-based body in May.

With officials from both organisations visiting Athens to prepare a first assessment of the progress made under the €30bn austerity program that the government has also been forced to implement, the Greek finance minister insisted that "every closed profession" would soon be opened up.

In the case of truckers, the first group to be tackled, it will mean that new licences will be issued at lower costs and in greater number. The sector wants the government to delay the introduction of a bill to allow for more talks with the industry.

The truckers have shown this week that such reforms will not be easy.

In a culture where workers' rights are seen as sacred, militant unionists have reacted furiously to the mobilisation.

"The government is aiming to smash every striker's right," Rizospastis, the newspaper of the KKE communist party proclaimed on its front page. "There is nothing but to gather forces and fight."

The strike has further dented tourism – widely seen as the linchpin of the country's economic recovery this summer. With one in five Greeks working in the sector, tourism accounts for almost 20% of GDP.

The trucker's strike "is a huge problem for bookings that our country needs, to cover part of the losses that have occurred in recent months," said Andreas Andreadis who heads the Greek Hotel Federation.

http://www.guardian.co.uk/world/2010/jul...CMP=twt_gu

[Jan Klimkowski]

For "austerity", read Shock Therapy:

Greek Bonds Slump As Austerity Backfires, Country Enters "Death Spiral", And The Violent End Game Approaches

Those patiently following the Greek Bond-Bund spread to its inevitable conclusion have been fully aware that the plan that Europe is betting its entire future on, is patently flawed: namely that austerity, by its definition does not, and will not work. In fact, instead of bringing stability, austerity will slowly but surely eat away at the economy of whatever country it is instituted in - in some cases slowly, in others, like Greece, very rapidly. Indeed, the Greek spread has now risen to levels last seen during the early May near-revolution in Athens, at well over 800 bps.

And for the specific consequences of austerity, Germany's Spiegel has done a terrific summary of what it defines as a "death spiral" for the Mediterranean country: "Stores are closing, tax revenues are falling and unemployment has hit an unbelievable 70 percent in some places. Frustrated workers are threatening to strike back. A mixture of fear, hopelessness and anger is brewing in Greek society." Spiegel quotes a atypical Greek: ""If you take away my family's bread, I'll take you down -- the government needs to know that. And don't call us anarchists if that happens! We're heads of our families and we're desperate." All those who think violent strikes in the PIIGS are a thing of the past, we have news for you. The (pseudo) vacation season is over, and millions of workers are coming back. They may not have money, but they have lots of free time, lots of unemployment, and even more pent up anger. Things are about to get very heated once again, first in Greece, and soon after, everywhere else.

Spiegel summarizes the big picture for those who still don't get it:

The feast of the Assumption of Mary on Aug. 15 is the high point of summer in the Greek Orthodox world. Here in one of the country's many churches, believers pray to the Virgin for mercy, with many of them falling to their knees.

The newspaper Ta Nea has recommended that the Greek government adopt the very same approach -- the country's leaders have to hope that Mary comes up with a miracle to save Greece from a serious crisis, the paper writes. Without divine intervention, the newspaper suggested, it will be a difficult autumn for the Mediterranean state.

This dire prognosis comes even despite Athens' massive efforts to sort out the country's finances. The government's draconian austerity measures have managed to reduce the country's budget deficit by an almost unbelievable 39.7 percent, after previous governments had squandered tax money and falsified statistics for years. The measures have reduced government spending by a total of 10 percent, 4.5 percent more than the EU and International Monetary Fund (IMF) had required.

The problem is that the austerity measures have in the meantime affected every aspect of the country's economy. Purchasing power is dropping, consumption is taking a nosedive and the number of bankruptcies and unemployed are on the rise. The country's gross domestic product shrank by 1.5 percent in the second quarter of this year. Tax revenue, desperately needed in order to consolidate the national finances, has dropped off. A mixture of fear, hopelessness and anger is brewing in Greek society.

The specifics on how the economy is getting skewered:

Unemployment Rates of up to 70 Percent:

There's hardly a worker in the shipbuilding district of Perama who could still manage that. Unemployment in the city hovers between 60 and 70 percent, according to a study conducted by the University of Piraeus. While 77 percent of Greek shipping companies indicate they are satisfied with the quality of work done in Perama, nearly 50 percent still send their ships to be repaired in Turkey, Korea or China. Costs are too high in Greece, they say. The country, they argue, has too much bureaucracy and too many strikes, with labor disputes often delaying delivery times.

Perama is certainly an unusually extreme case. But the shipyards' decline provides a telling example of the Greek economy's increasing inability to compete. Barely any of the country's industries can keep up with international competition in terms of productivity, and experts expect the country's gross domestic product to fall by 4 percent over the course of the entire year. Germany, by way of comparison, is hoping for growth of up to 3 percent.

Sales Figures Dropping Everywhere:

A short jaunt through Athens' shopping streets reveals the scale of the decline. Fully a quarter of the store windows on Stadiou Street bear red signs reading "Enoikiazetai" -- for rent. The National Confederation of Hellenic Commerce (ESEE) calculates that 17 percent of all shops in Athens have had to file for bankruptcy.

Things aren't any better in the smaller towns. Chalkidona was, until just a few years ago, a hub for trucking traffic in the area around Thessaloniki. Two main streets, lined with fast food restaurants and stores catering to truckers, intersect in the small, dismal town. Maria Lialiambidou's house sits directly on the main trucking route. Rent from a pastry shop on the ground floor of the building used to provide her with €350 per month, an amount that helped considerably in supplementing her widow's pension of €320.

A sign on the other side of the street advertises "Sakis' Restaurant." The owner, Sakis, is still hanging on, with customers filling one or two of the restaurant's tables now and then. "There's really no work for me here anymore," says one Albanian employee, who goes by the name Eleni in Greece. "Many others have already gone back to Albania, where it's not any worse than here. We'll see when I have to go too."

A pervasive depression with no way out:

The entire country is in the grip of a depression. Everything seems to be going downhill. The spiral is continuing unabated, and there is no clear way out. The worse part, however, is the fact that hardly anyone still hopes that things will improve one day.

The country's unemployment rate makes this trend particularly clear. In 2009, it was 9.5 percent. This year it may rise to 12.1 percent and economists expect it to reach 14.3 percent in 2011. Those, though, are only the official numbers, which were provided by Angel Gurría, secretary general of the Organisation for Economic Co-operation and Development (OECD). The Greek trade union association GSEE considers those numbers far too optimistic. It considers 20 percent to be a more likely figure for 2011. This would put the unemployment rate as high as it was in 1960, when hundreds of thousands of Greeks were forced to emigrate. Meanwhile, purchasing power has fallen to its 1984 level, according to the GSEE.

And most dangerously, 'Things Are Starting to Simmer'

Menelaos Givalos, a professor of political science at Athens University, has appeared on television, warning viewers that the worst times are still to come. He predicts a large wave of layoffs starting in September, with "extreme social consequences."

"Everything is getting more expensive, I'm hardly earning any money, and then I'm supposed to pay more taxes to help save the country? How is that supposed to work?" asks Nikos Meletis, the shipbuilder. His friends, gathered in a small cafeteria on the pier in Perama, are gradually growing more vocal. They are all unemployed, desperate and angry at the politicians who got them into this mess. There is no sympathy here for any of the political parties and no longer any for the unions either.

"They only organize strikes to serve their own interests!" shouts one man, whose name is Panayiotis Peretridis. "The only thing that interests me anymore is my daily wage. A loaf of bread is my political party. I want to help my country -- give me work and I'll pay taxes! But our honor as first-class skilled workers, as heads of families, as Greeks, is being dragged through the dirt!"

"If you take away my family's bread, I'll take you down -- the government needs to know that," Meletis says. "And don't call us anarchists if that happens! We're heads of our families and we're desperate."

He predicts the situation will only become more heated. "Things are starting to simmer here," he says. "And at some point they're going to explode."

The experiment in saving Europe is coming to a close. Germany had its miracle run as exports surged courtesy of a sub 1.20 Euro, and are now contracting, with the Fed stepping back on the printer gas. And with the imminent resumption of the contraction, the revulsion at having bailed out Greece will return, and with it all the unpleasant xenophobic side effects. Europe needed to buy 3-6 months of breathing room to get its house in order. It got it, but the house is in ever worse place than before. And now it is time for the aftermath of the expiration of the sugar high. European CDS spreads are looking way too cheap all over again.

http://www.zerohedge.com/article/greek-b...game-appro

[Jan Klimkowski]

The saga of Germany versus Greece continues via a Der Spiegel "exclusive", authorized by senior German financial and political sources:

05/06/2011

Athens Mulls Plans for New Currency

Greece Considers Exit from Euro Zone
By Christian Reiermann

The debt crisis in Greece has taken on a dramatic new twist. Sources with information about the government's actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area's finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.

Greece's economic problems are massive, with protests against the government being held almost daily. Now Prime Minister George Papandreou apparently feels he has no other option: SPIEGEL ONLINE has obtained information from German government sources knowledgeable of the situation in Athens indicating that Papandreou's government is considering abandoning the euro and reintroducing its own currency.

Alarmed by Athens' intentions, the European Commission has called a crisis meeting in Luxembourg on Friday night. The meeting is taking place at Château de Senningen, a site used by the Luxembourg government for official meetings. In addition to Greece's possible exit from the currency union, a speedy restructuring of the country's debt also features on the agenda. One year after the Greek crisis broke out, the development represents a potentially existential turning point for the European monetary union -- regardless which variant is ultimately decided upon for dealing with Greece's massive troubles.

Given the tense situation, the meeting in Luxembourg has been declared highly confidential, with only the euro-zone finance ministers and senior staff members permitted to attend. Finance Minister Wolfgang Schäuble of Chancellor Angela Merkel's conservative Christian Democratic Union (CDU) and Jörg Asmussen, an influential state secretary in the Finance Ministry, are attending on Germany's behalf.

'Considerable Devaluation'

Sources told SPIEGEL ONLINE that Schäuble intends to seek to prevent Greece from leaving the euro zone if at all possible. He will take with him to the meeting in Luxembourg an internal paper prepared by the experts at his ministry warning of the possible dire consequences if Athens were to drop the euro.

"It would lead to a considerable devaluation of the new (Greek) domestic currency against the euro," the paper states. According to German Finance Ministry estimates, the currency could lose as much as 50 percent of its value, leading to a drastic increase in Greek national debt. Schäuble's staff have calculated that Greece's national deficit would rise to 200 percent of gross domestic product after such a devaluation. "A debt restructuring would be inevitable," his experts warn in the paper. In other words: Greece would go bankrupt.

It remains unclear whether it would even be legally possible for Greece to depart from the euro zone. Legal experts believe it would also be necessary for the country to split from the European Union entirely in order to abandon the common currency. At the same time, it is questionable whether other members of the currency union would actually refuse to accept a unilateral exit from the euro zone by the government in Athens.

What is certain, according to the assessment of the German Finance Ministry, is that the measure would have a disastrous impact on the European economy.

"The currency conversion would lead to capital flight," they write. And Greece might see itself as forced to implement controls on the transfer of capital to stop the flight of funds out of the country. "This could not be reconciled with the fundamental freedoms instilled in the European internal market," the paper states. In addition, the country would also be cut off from capital markets for years to come.

In addition, the withdrawal of a country from the common currency union would "seriously damage faith in the functioning of the euro zone," the document continues. International investors would be forced to consider the possibility that further euro-zone members could withdraw in the future. "That would lead to contagion in the euro zone," the paper continues.

Banks at Risk

Moreover, should Athens turn its back on the common currency zone, it would have serious implications for the already wobbly banking sector, particularly in Greece itself. The change in currency "would consume the entire capital base of the banking system and the country's banks would be abruptly insolvent." Banks outside of Greece would suffer as well. "Credit institutions in Germany and elsewhere would be confronted with considerable losses on their outstanding debts," the paper reads.


The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to "write down a significant portion of its claims as irrecoverable." In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds, which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion) "Given its 27 percent share of ECB capital, Germany would bear the majority of the losses," the paper reads.

In short, a Greek withdrawal from the euro zone and an ensuing national default would be expensive for euro-zone countries and their taxpayers. Together with the International Monetary Fund, the EU member states have already pledged €110 billion ($159.5 billion) in aid to Athens -- half of which has already been paid out.

"Should the country become insolvent," the paper reads, "euro-zone countries would have to renounce a portion of their claims."

Zero Hedge believes this may be a Greek bid to improve the terms of their restructuring from Permanent Debt Slavery to, um, Permanent Debt Slavery But It'll Take Longer For The People To Realize:

Here Is Why A Voluntary Greek Restructuring Makes No Sense
While on one hand nobody can predict what the downstream effects on the European financial system will be from a Greek restructuring, and if Lehman is any indication, they would be quite dramatic to say the least, the biggest reason why Greece would likely never voluntarily initiate a pull out of the eurozone (which would mean an immediate default for all EUR-denominated Greek debt, which is all of it), comes courtesy of Credit Sights: "The reality from Greece's perspective is that if it unclear why restructuring would be a politically astute option. More than a quarter of Greek debt is held domestically - primarily social security (€28 billion) and banks (€31 billion), but even Greek households are holding €6 billion in short-dated securities. While those are relatively small amounts, we don't believe that asking those sectors to accept losses on their holdings of government securities would be a vote winner. What's more, Greece has the liquidity it needs until some time in 2013 thanks to the EU and IMF loan facility. There is €83 billion within Greece' EU-IMF facility that has not yet been drawn."

And along those lines a reader submits:

I'm convinced Greece is jealous that the portuguese got a much better deal. They want the same deal arguing that they have already suffered long enough... Monday they announce that Greece is getting better terms and we are off to the races... by early 2012 greece restructures debt.

Alternately, there are claims that German central bankers genuinely want Greece out of the Euro, in the idiotic belief that this would somehow "cleanse" the Euro and restore market confidence.

As of April 29, 2011, Greek 2 year debt was paying 26 percent interest:

Greek two-year yields rose back above 26 percent, while 10- year yields reached 16 percent, both approaching euro-era all- time highs.

Greek two-year yields surged as much as 109 basis points to 26.01 percent before retreating to 25.37 percent, 2.36 percentage points higher in the week. Ten-year yields gained as much as 31 basis points today to 16.01 percent, before sliding to 15.70 percent, a weekly gain of 80 basis points. The five- year security's yield rose 15 basis points today.

This is clearly unsustainable. In addition, Greek jobs and public services are being destroyed.

Greece is being subjected to Economic Shock Therapy to protect international banking interests from being forced to mark their idiotic investments to market (where they would be worth a fraction of their currently stated book value).

The Greek people need to follow the example of the Icelanders and refuse to agree to onerous debt restructuring. Every penny paid in interest on unrepayable debt, is a penny more lost forever.

The Irish, Italians, Portuguese, Austrians et al should follow shortly after.

[Magda Hassan]

I see Ireland has been offered a reduced rate to keep them from bolting. Boy, 26% for Greece is clearly unsustainable though.

[Jan Klimkowski]

A few months ago, certain German newspapers were demanding Greek cultural artefacts (eg the Parthenon) and territory (specifically islands favoured by holidaying Germans) as collateral for Greek debt restructuring.

Now, the Panzers are rolling south:

Athens has a long-term borrowing requirement of EUR27 billion in 2012. "Greece has asked for the deficit targets to be eased, specifically to push the budget deficit target of 3% of GDP in 2014 forward by at least two years."" Alas, as expected the latest panhandling attempt by Greece was met with abject failure: "No decisions were taken, according to the Commission's statement. Greece's request for easier terms didn't win the assent of Germany and other participants in Friday's meeting, according to a senior European official." In other words, the country is on autopilot, and possibly worse.

Per Bloomberg: "European Union officials may require Greece to provide collateral for aid as policy makers struggle to prevent the euro area's first sovereign debt restructuring, said a person with direct knowledge of the situation."

In other words, for the first time since Weimar, a country may soon be forced to collateralize superpriority debt issuance to foreign creditors: an exercise not really seen in international politics since the Weimar war reparations... and at least Germany had its own currency back then. Summary: the EU just told Greece to prepare for Debtor in Possession loan issuance.

Basically should Greece default, and it will, the Parthenon will go to Germany, Santorini will go to Luxembourg, Piraeos will likely end up in IMF hands, and the Chinese will own the rest. Welcome to sovereign debt restructurings for the 21st century.

[Jan Klimkowski]

Greece Downgraded From BB- To B As S&P Believes More Than 50% Principal Debt Reduction Would Be Required
From S&P:

Overview

Under our sovereign ratings criteria, a commercial debt rescheduling typically constitutes a default.
In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds.
Accordingly, we are lowering both the long- and short-term ratings on Greece to 'B' and 'C', respectively.
We are leaving both ratings on CreditWatch Negative.
Rating Action

On May 9, 2011, Standard & Poor's Ratings Services lowered its long- and short-term sovereign credit ratings on the Hellenic Republic (Greece) to 'B' and 'C', from 'BB-' and 'B', respectively. Both the long- and short-term ratings remain on CreditWatch, with negative implications, where they were first placed on Dec. 2, 2010, and March 29, 2011, respectively. On May 9, 2011, Standard & Poor's '4' recovery rating for Greece remains unchanged--indicating an estimated 30%-50% recovery upon default- and its 'AAA' transfer and convertibility assessment for Greece, which applies to all members of the eurozone, also remains unchanged.

So "More Than 50% Principal Debt Reduction Would Be Required".

Hmm - given that the two-year Greek government bond interest rate is currently 26%, the thieving bankers are pretty close to breaking even - without requiring Crete and the Parthenon as collateral for bad debts.

The official Greek government response to S&P's move was amusing but about two decades too late:

GREEK FINANCE MINISTRY SAYS S&P CREDIBILITY IN QUESTION
GREECE SAYS S&P MOVE ISN'T JUSTIFIED