As The Slog spent much of the week predicting, talks between Athens and its bondholders have broken down on the ‘haircuts’ issue.
The FT this morning offers an unconsciously amusing rearrangement of history in order to justify its incompetence:
‘Talks over Greece’s debt restructuring broke down on Friday, an unexpected blow that makes it increasingly likely that Athens will become the first government of a developed country in more than 60 years to suffer a full-scale default on its debt.…’
One can’t help but smile. In The Slog last Tuesday:
‘The Slog has learned this morning, from a source directly involved, that the Greek debt situation “would almost certainly” have become critical this week – but that with or without Merkozy pressure, “the race between debt and austerity is lost and gone”.
‘Yesterday morning I suggested that Merkozy and Greek PM Lucas Papademos had one version of the Troika/bondholders/Greeks situation, whereas a usually trustworthy Slog source held the opposite view. The source is now shown to have been right…What we have here is a fight to the death between private debt-holders on the one hand, and sovereign debtors worried about their banking systems on the other….’
‘..today, the Greek finance minister Evangelos Venizelos will hold talks with the Institute of International Finance (IIF) about the ‘voluntary’ 50% haircut he wants them to take on the value of their Greek bond holdings. Three days ago, his boss Lucas Papademos tried to position this as a done deal. As we now know, it is anything but…’
The FT goes on to say that since the October ‘deal’ on haircuts with the IIF (one which my Frankfurt mole insisted at the time could not be delivered by the IIF) ‘data for Greek growth and public finances have been worse than expected’. Not here they weren’t. But anyway, those in the bubble are at last aware that outside the bubble, we now have yet another major calamity in prospect: the Troika is back in Athens and ready to decide on the release of another tranche of bailout money…but Finance Minister Venizelos has nothing to say to them.
By contrast, Christine Lagarde at the IMF has had plenty to say to the lenders this week. Most of it involved the truth that even a 50% haircut isn’t going to get the Greek Government within a country mile of its debt repayment schedule. This did not, as you’d imagine, play well with the banks that had agreed to a haircut….and only confirmed the Hedge Funds in their hard line.
At base, however, once again the Merkozy/Brussels axis is shown up as commercially naive – and another well-turned corner into the New Dawn is revealed as a detour into the open manhole. Just five or so Hedgie gargoyles now have the EU – and thereby, the world – by the balls. As they’ve been piling into discounted March 2012 payout bonds since September last, this was hardly a curved ball from a blue sky.
But a row was brewing last night over Italian and Spanish bond sales, both of which countries had their rating cut by S&P some 24 hours later. Some disgruntled investors are furious, claiming that both they and Brussels must have known they were about to be downgraded. I’ve yet to see any proof of that, but then I’ve yet to meet anyone sane who would invest in such debt in the first place. Caveat emptor, as they say at Tesco.
Meanwhile, a continuing – and increasingly ominous – silence from Berlin. That situation is currently my focus.
Stay tuned.
Related: The great unreported Franco-German Pension stitch-up
The Slog 