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Commentary

Linkfest on Greece

Greece is on the verge of default or a bailout or a bit of both, it seems. The idea of any of these events happening has spooked world markets; now any rumour seems to come with big market moves – an indicator of a panic move in the offing. Who knows, maybe we’re in the middle of the panic move – remember, markets the world over have corrected 10% – and the next round is near.

  • At Naked Capitalism: A description of the rumour that started markets rolling upwards, that Germany would back a Greek Rescue. First, the telegraph kicked in an article saying the German Finance Minister was going to rescue them, and German banks have exposures of €43bn in Greece.

Wolfgang Schäuble, Germany’s finance minister, has asked officials to prepare a plan in time for a summit of EU leaders on Thursday, according to reports in the German media. The options include either a loan from EU states or some sort of institutional EU response.

Germany’s apparent backing for a bail-out comes despite worries that it will lead to the breakdown of fiscal discipline across the Club Med region. It also raises troubling questions of fairness. Ireland has tackled its own crisis by slashing wages and going far beyond any measure so far offered by Greece, yet Dublin has not received help.

Germany’s dramatic shift in policy changes the character of the euro project. It follows weeks of soul-searching in Berlin, and after increasingly loud pleas from Brussels, Paris and southern capitals. The deciding factor was concern that letting Greece fail risked a “Lehman-style” run on Club Med debt, with systemic spill-over across Europe.

German exposure to the region amounts to €43bn in Greece, €47bn in Portugal, €193bn in Ireland, and €240bn in Spain, according to the Bank for International Settlements. German lenders are already vulnerable, with the world’s lowest risk-adjusted capital ratios bar Japan…

“Government spokesman Ulrich Wilhelm rejects as unfounded reports citing coalition sources saying a decision for aid for Greece has in effect been made,” a government official quoted him as saying. Reuters had earlier reported a senior German ruling coalition source as saying euro zone countries had decided in principle to help Greece.

  • Reader MK shouts out a link that Goldman Sachs helped Greece mask it’s true debt. With Euro treaties limiting deficits to 3% and debt to 60% of GDP, Greece used complex swaps with “fictional exchange rates” to get some creating financing, thus moving out some debt to 10-15 years later. The treaties don’t treat such swap liabilities (“derivatives”) as real debt, so it doesn’t get counted – but hey, it’s debt because the structure makes it repayable. The problem with derivatives is in their abuse to do regulatory arbitrage – if they now change the rules,  everyone else who’s made these kind of trades gets smashed. And heck, that’s the ONLY reason they won’t change the rules. This is just sick.
  • Roubini on Greece: Greece has 13% fiscal deficits coming up. There’s political problems in actually cutting it (Strikes, unrest and all that – that’s potential alternate venue for the Shiv Sena/MNS). Three coinciding events – ECB’s stimulus exit, Dubai’s default and Greek deficit revisions from 3.7% to 12.7% (Gee, you think that last one might be a little important?) did the damage. Roubini thinks they’ll have to cut spending, no matter what; default is not an option.

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