Greek Chicken
You never know what's going to push the sputtering economy over the edge. Most of the time, it's not a big event but a small event that reveals just how bad the trouble is.
Greece, for instance, has been on the sick list for over a year. Back in July, it had one of those close calls, and was bailed out by the European Central Bank -- sort of like when an indebted, under water consumer gets a fresh credit card in the mail. Everyone breathes a little easier. Everyone feels a little richer. But no one is any better off. In fact, sometimes buying time is the worst thing you can do.
The news is, Greece is going to default for real, probably this weekend. From Business Insider:
Tons of people are chattering about the possibility of a Greek default today, with Germany ready to bail out its banks if that happens.
First, private sector participation in the bailout—in which bondholders would have to accept about a 21 percent haircut voluntarily—is not going to be very popular.
Greece bank managers have said they expect private sector participation in the bond swap to reach about 80%. This is well short of the 90% Greece demanded last month. If Greece were actually to take a hard line on this, it would compromise an $185 billion piece of the bailout agreement.
This swap technically signals default anyway, so the failure to go through with it means we'd see a hard default rather than the managed, "selective" default outlined in the July 21 agreement.
The deadline for bondholders to declare interest in the plan is today.
In other words, private sector investors holding Greek paper are unwilling to lose about 1/5 of their investment. Which makes sense only in the context of the insane, irrational idea of anyone investing in Greek paper in the first place.
What's happening here is a game of chicken. Private investors refuse to take a loss, because they think that they'll get better terms if they hold out. They think -- and they're probably right -- that German and French central bankers will blink, and eat some of that loss, passing the bill along to European taxpayers.
Here's the nice way to put it, from CNN.com:
Last week, IMF and EU officials unexpectedly left Athens during a review of the government's progress on its debt reduction program. That gave rise to speculation that Greece may not be able to hit certain fiscal targets that are a condition for its bailout loans from the so-called troika [of the EU, the IMF, and the European Central Bank.]
Greece received the final installment of its first bailout in July. The $17 billion it received was expected to keep the nation afloat for three months.
"The concern now," said Weinberg, "is that having been declared unfit in previous reviews, Greece might not get the money it needs this time, and that would put them into a default situation."
In addition, investors are worried that Greece may not go through with a proposed bond swap with private sector investors if the participation rate falls short of expectations.
"There is still uncertainty over whether sufficient private sector investors have been incentivised to participate in the debt swap arrangements involving Greek debt," economists at Nomura Securities wrote in a research report.
Private investors haven't been "incentivized" enough. Translation: had their losses subsidized by the European taxpayer enough. Which they probably will be, sometime this weekend. There's too much vanity, arrogance, denial, and sheer magical thinking tied up in the EU, the ECB, and central banking in general to expect anything else.
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Comments :
Jan '11
Re: Greek Chicken
I've never had Greek chicken; I wonder what it tastes like…
Apr '11
Re: Greek Chicken
Rob,
Your guest, James Delingpol on the podcast was very entertaining while being insightful by the way.
So what you saying here is that his pessimism about "The Next Dark Age" is just a blink away.
Is that the sound of Bernanke's printing press I hear clattering in the background?
Another "Marshall Pan" for Europe in the offering.
Sounds like a another "crisis" that Mr Emmanuel would not want to waste!
Apr '11
Re: Greek Chicken
I'm not sure what it tastes like but I bet it goes great with German beer!
Jul '10
Re: Greek Chicken
"Last week, IMF and EU officials unexpectedly left Athens during a review of the government's progress on its debt reduction program."
Not only does it give rise to speculation that Greece will not hit fiscal targets, but also to epic rioting.
Dec '10
Re: Greek Chicken
"There's too much vanity, arrogance, denial, and sheer magical thinking tied up in the EU, the ECB, and central banking in general to expect anything else."
And, of course, the IMF, which means the U.S., which means (trying to) borrow(ing) more money to support a selfish, socialist regime.
I suggest that while we still have chickens in our pots, we try this recipe!
Sep '11
Re: Greek Chicken
I recently returned from Brussels after a study abroad through July and August. The course was an intensive study of the European Union during which I met with a number of bureaucrats, think-tankers, and professors. I was dumbfounded by the complete denial of all these persons as to a Greek default. I came to the conclusion that none of these people were willing to consider what bailouts mean to the population. They are so firmly entrenched in the idea of an ever growing and ever consolidated union, they wouldn't stop to consider anything but the rosy scenario.
The agreed-to bailout package you've outlined hasn't even passed the German Parliament's budget committee as their Constitutional Court ruled that it must. I'll be interested to see how German MP's will judge the deal in light of the fact that German voters will be bearing the brunt of the weight.
In any event, a default is imminent no matter how you well you wrap it in legal language.
Edited on Sep 9, 2011 at 3:49pmMar '11
Re: Greek Chicken
Take a good hard look my fellow citizens, this Greek story is the preview. In Mr. Long's world I imagine that would be, "Coming Soon to a theater near you!" simply substitute the word theater for your local municipality or state.
May '10
Re: Greek Chicken
Good. The longer it's delayed, the more it will hurt. Better that they (and we) face reality now.
May '10
Re: Greek Chicken
There is more here than meets the eye -or ear as the case may be. Any serious holder of Greek debt would look at a 20% haircut as I did watching Ursula Andress emerge from the sea in THAT Bond movie. If anyone really thought they could limit downgrade/default to 20%, they would be lined up around the block for as many times required.
May '10
Re: Greek Chicken
When I read reports in Greek hospitals of a patient's family having to pay bribes to nurses to look after their loved ones; I can only think the sooner these Augean Stables are cleaned out, the better for Greece and the rest of the EU.
I cannot imagine why the Germans, Dutch, Northern Italians with their thrift and industry would want to support these and other dysfunctional states with their money. Would the USA support a similar backing of Venezuela or Mexico. Wait, oh never mind,...