BERLIN—Germany is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, according to people familiar with the matter.
Berlin’s concession that it must lend Greece more money, even without burden-sharing by bondholders in the short term, would help Europe overcome its impasse over Greece’s funding needs before the indebted country runs out of cash in mid-July.
What this really means is that Merkel has been apprised of the fact that her banks over there have written too many swaps and are too highly leveraged to survive a Greek default without yet another round of taxpayer funds from the Germans. She is therefore willing to risk political suicide (which is almost-certain) in order to avoid having to admit that the game-playing has continued post the original Greek crisis, and that in fact there has been no de-leveraging or cleanup of the German (and French, incidentally) balance sheets at all.
In fact, what I suspect is that these banks over in the Eurozone have been buying up these Greek bonds at a nice discount and then tendering them to the ECB on a Repo basis for cash at full par value. This of course is manifestly unsound but it’s what happens when nobody can see inside the “magic box.” The problem comes if Greece suddenly decides not to pay, at which point the Repo transaction becomes uncovered and the ECB is screwed.
Euro-zone governments have ruled out lending to Greece without IMF participation. Greece will face a payment crisis in July unless it receives €12 billion of credits on June 29 from the IMF and Europe, euro-zone officials say.
I’ll lay even odds that Greece doesn’t have until June 29th.
“There’s a degree of confidence that cooler heads will prevail and the next round of assistance will be forthcoming”for Greece, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp.
Cooler heads? What’s “cool-headed” about giving an entity that has proved it cannot balance its budget more and more money on loan?
Oh yeah, I get it – we can’t possibly let the truth out. You know, the ugly truth: Greece is insolvent and so are a significant number of banks that lent it money while being levered up 30:1.
Yes, still levered 30:1. You are over there in Europe, aren’t you?
Why I bet you are.
Of course there’s also a public charge of Treason that has now been leveled against the Greek Prime Minister too….
The gist of the allegations rest on the charge by Mr. Kammenos, that the Greek Prime Minister, Mr. George Papandreou and members of his team, presided over the sale of 1.3 billion dollars worth of credit default swap contracts (CDS on Greek sovereign debt) on or around December of 2009, shortly after coming to power. The 1.3 billion dollars worth of insurance protecting against a Greek default was bought during the spring and summer of the same year, by the Hellenic Postbank, a public banking arm of the Greek government.
Oh that’s very nice. Isn’t that kinda like our Fed writing credit derivatives? They haven’t done that, right? That would be illegal, right? Oh wait, they have done that…