GREEK DEFAULT: THE TROIKA PREPARES TO ENGAGE REVERSE GEAR

The Troika continues to avoid using real money, and damns Athens with leaks

Wolfgang Schauble spent most of the weekend muttering about Greeks not fulfilling the bailout clauses, until Angela Merkel requested that he halt’s Maul, after which Wolfie  – who really can’t bear to say anything nice about Greece – popped up again yesterday to say that, thanks to the Troika’s immaculate budgetary planning, Greece would achieve the 2020 debt/GDP ratio, and possibly beat it.

Last week, I posted to suggest that the planned defaulters would devote this week to suggesting that Greece wasn’t playing the game, and thus should not get the rest of this second bailout bonanza of 130 bn euros. Yesterday I pointed out (to the apathy of the MSM) that it was quite likely Athens wouldn’t get any of it, as the spondooliks behing handed over weren’t from the bailout EFSF anyway: they’d been issued via a bit of smoke-and-mirrors bond creation by SuperMario of the ECB. I do believe that these two things may well be linked, and overnight there’s been more evidence of the ‘excuses for backing out’ beginning to surface from the Troika and Brussels.

Herr Schauble having assured us that 2020 was looking tip-top, a report was leaked to Reuters yesterday late afternoon GMT showing that ‘current projections reveal large fiscal gaps in 2013-14′. As the report was produced jointly by the European Union (EU), the European Central Bank (ECB) and the International Monetary Fund (IMF), it quickly becomes clear why they leaked it to one of the biggest news agencies in the world. Louise Armitstead picked up the story last night (it’s a very good piece), pointing out how the Report also says ‘The recovery previously announced for next year will be further delayed with, at best, a stagnation of activity in 2013′. I love that word ‘announced’, don’t you? Sort of smacks of time-dilation by the all-powerful Sprouts: ‘we announce, and lo – it happens.’ Or not.

Now the pure maths students among you will have noticed that 2013 is one year away, not eight. It is in fact next year, the one that starts in nine months from now. Do we, um, perhaps think that what happens then might f**k up the 2020 outlook? We should all watch for several prominent figures now starting to ask that question – and others. For example, “Why are we giving Venizelos the money if Greece is going down a deep well with no water at the bottom next year?”

Interestingly, the Troika have thus far chosen to ignore the $107bn of additional liability brought up by ISDA. Methinks they might be keeping it in reserve, for shocked discovery at a later date. In the meantime, I’d imagine the next salvo will concern Things that the Greeks Haven’t Done, how very dare they. Reuters, for example, notes that the Report hints darkly, ‘The continuation of the very comprehensive international financial assistance can only be expected if policy implementation improves‘. Those are my italics, but I’m not entirely sure they’re necessary. Keep an eye out for more brickbats this week and next.

Regualr Sloggers already know what my point is: these people are putting together alibis, and assembling a ‘case’ to justify pulling the plug some time soon. And those who suggest this analysis is awry – because money is being handed over – should realise that not a single cent of new or real money has yet been given to Greece. We’re now told that 40 bn euros of it will be money withheld from Bailout One; and for people who were awake yesterday, the rest of it was funny-non-cash-bond surreal stuff issued last week by Mario Draghi while Jens Weidmann wasn’t looking.

The Troika is ensuring that Greece’s survival of the March 20th default possibility costs them nothing….and getting its soundbites in a row for when Greece makes an unceremonious Euro-exit. Thus in what they hope will seem like the final analysis, they’ll be able to say, “Look – we did our best – we invested money to save them, but sadly nothing could.”

Will it be March 23rd? I think that was a plan at one point; for all I know further on that one, it might still be. All I’m doing is reading the runes…and the signs are there. However, others are now suggesting a limp along until the long Easter Bank Holiday – an even longer break in which to close all Greek banks than the three-day weekend due to follow March 23rd. The key point here is not to pick dates and to place bets: it is to get over the fact that a ‘surprise’ default carried out while everyone’s away (and handled with apparent efficiency) might do a lot to calm the markets. I don’t think it would, and I think it would still turn messy in the end. I also think that at least one other peripheral might also start thinking about pulling the same stunt….only without involving Brussels. Spain, for example. For all kinds of bad debt reasons involving the ECB, that would be the beginning of the end for the eurozone.

Angela Merkel, meanwhile, has been largely quiet and far away. According to the Telegraph’s punctuation department, she went to Afghanistan yesterday and killed 16 villagers. She didn’t actually, but it reads like that. She went because she’s not sure Germany should be pulling out. Is the Leaden Lady looking for her Falklands here? We have no way of knowing, but anyway after that she legged it with all speed to Goldman’s Italian office, there to meet Mario Monti and go into metaphor warp-drive.

“We’ve come a good way along the mountain path, but we’re not completely over the mountain,” Merkel told the Italian media, “I suspect that in the next few years there will continue to be new mountains — there won’t be a celebratory event in which we say we’re over the mountain and now we can sit among the trees and say that we’ve done it.”

Ve luff to go a wanderung, along ze mountain track val-de-ree-val-der-rah. Given the debts involved here, I’m not sure mountains were a wise choice for the Chancellor’s allusions to future tribulations, but unfortunately blood, toil, tears and sweat had already gone. Asked about boosting the region’s crisis-fighting war chest – is it a firewall? Is it a bazooka? No, it’s a war-chest – Merkel declined to comment. I understand, however, that Signor Monti gave her another ear-bashing about it. As Wolfie Strangelove has already explained, Berlin will remain firm it its opposition to firewall-boosting until the end of March. Whatever can he have planned for before then?

Stay tuned.

Related: The world’s cheapest bailout goes ahead

 

59 thoughts on “GREEK DEFAULT: THE TROIKA PREPARES TO ENGAGE REVERSE GEAR

  1. There is NO REAL MONEY in EFSF..no money at all.
    Smone hhas to READ the ESM treaty…

    The joke is that in the contract, Greece is asking for money to the counterparty who does not have the money to lend !!

    If smone does DD on the Facility… he will find my shoe ( 12M)

    Π₪₪₪₪Π

  2. To predict the GDP of one’s own country eight years down the road would be foolhardy, even in a time of stability. For a German politician to predict the GDP in Greece in eight years time, and to do it in a period of great instability should be seen as absurd.
    Yet Schauble is reported in all seriousness by the MSM. They don’t seem to do investigative journalism any more.

  3. “Merkel told the Italian media, ““I suspect that in the next few years there will continue to be new mountains…”

    This two year old EZ crises has been marked by a public belief among the EU political elites and Brussel crats that it is a problem which *can be solved* if they all give one more heave, one more dishonest press conference, dish out one more austerity package and handover one more dollop of bailout funds. These people are in deep denial of reality: the EZ is a crock and must be abandoned or at the very least scaled back to like-economies. Only when that reality is faced can recovery begin. Everything else is misguided and causing growing damage to the European economies.

    • BT: Not just economies. Utter destruction of individuals and organisations good faith in each other; without this no society can flourish. The former occupied territories still have memories of ‘forced’ social and financial terror. We don’t, but paid the price of temporary ruin in order to liberate them. And they think they have a superior ‘model’. My a**e!.

      • Warning signs !
        The sirens are blasting out noise.
        We are at the crossroads.
        American fascism or Eurocrat communism.
        Democracy and fiat money cannot co exist.
        The lesson of history.

      • @John: It could be a lot worse, although it is deteriorating. I’ve recently posted that the EU high command is largely made up old commies and old fascists (little difference) and what we’re seeing, IMHO, is progressive corporate & political fascism taking hold. There is no exact model in history to match it against but I’d say it lies somewhere between Stalin-Mussolini with some Hitler mixed in for good measure. Either way, it’s top-down authoritarian, undemocratic and always corrupt. Obviously they seek to justify their policies on the back of the EZ crises but in truth it’s been progessing for years. And it isn’t only the EU itself going down that road…EU member states are also going down the same road. We’re looking at full-on-in-your-face socialism. I can’t imagine anything more vile.

  4. I could not have described it better myself: Greg Smith, who is resigning today as a Goldman Sachs executive director and head of its US equity derivatives business in Europe, the Middle East and Africa after 12 years, wrote:

    “I can honestly say that the environment now is as toxic and destructive as I have ever seen it. To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money.”

      • @Sendin. Thanks for the link. A bombshell has exploded on Wall Street (maybe).
        It looks as if the conspiracy theories I espoused in my younger days really were b****cks after all. The big money isn’t being manipulated by those centuries old banking familes with world domination in mind, but by amoral whizz kids hooked on income maximisation.
        The problem is compounded by computers doing zillions of micro-deals every second, taking with them all the mug punters who see a trend that in reality is a flash in the pan, amplified by the volume of deals.
        There’s no-one taking the long view, an opinion which is supported by the disaster we see unfolding.

      • Send, that is a deeply worrying piece you linked to.

        If Goldmans go under, eventually, because of the behaviour Greg Smith describes – with feeling – it serves them right. However what of the damage they may be doing to their clients, who hold so much of other people’s money?

      • “In our view, we will only be successful if our clients are successful,” the New York-based firm (G. Sachs) said in a statement today. “This fundamental truth lies at the heart of how we conduct ourselves.” Now come on GS, fundamental truths, are not excactly your strong suit!

      • An interesting letter. Call me cynical but is it the letter of a man of conscience, or the letter of a rat leaving a sinking ship? Chief executive of Goldman Sach’s derivatives business, and he’s only just decided to grow a pair? I suppose we will never know really, but it smells to me like a clever man covering a hasty exit before the world gets onto the real problems in the banking sector. A gambler who knows when to walk?

  5. John, with all this funny munny floating about and in danger of entering
    the real economy, why aren’t the German’s panicking about hyper-inflation?
    We’re told fear of inflation is built in to their DNA so why is Merkle quiet?
    Has the thought of climbing that next mountain just got too much for her?

    • The average german is far too occupied with superstar alike tv shows et al.
      Besides he thinks everything is fine now after greek debt “miracle” and if something goes wrong its the greeks fault, who are lazy crooks in the first place to his opinion.

      But hardly anyone realizes this:
      In a finite world there can not be neither infinite wealth nor debts in the long run, as they are two sides of the same coin.

      Its as easy as this, folks!

    • @Laurence

      The problem is that this sort of money is not easily seen. The average German (or Dutch) hasn’t seen that extra money, all they have seen is a gradual lowering of living standards and motorways that are progressively less well maintained. Mind you, the Dutch ones are in superb fettle, along with their railways.

      If they knew about the Draghi money printing, they would be very cross indeed. The problem here is that it is very complicated, and even with a well educated public, not everyone has studied economics at post-degree level. What is more, studying economics at that level probably means that you would not understand what is going on because you would then be trained in classical economics which takes no account of a bank’s ability to conjour up credit-debt contracts at will.

      The real problem is derivatives, which are an extension of the credit-debt contract. As long as you can pay the interest for the new contract out of your profits, all will be fine. With interest rates at near zero – especially in the UK and US – this means colossal leveraging is possible. Since it is almost exclusively off-balance sheet, none of this is seen when checking the bank for Basels (1,2 or 3).

      When economists don’t understand* these things how do you expect an ordinary citizen to start understanding them? (*Let’s face it: how many Oxford/Harvard Mathematics PhDs are there who work in the industry and have a moral core and are willing to speak out? They are the only people who really understand what is going on.)

      • @Gemz: Please tell your Dutch friends that there’ll understand it soon enough. All they have to do is wait for rising inflation, which is what I am sure is being planned by the EZ members *and* also in the UK. It is always the easiest way out of a debt crises.

      • Everyone re German fear of inflation + Angela the Slient
        The fear is real enough, but Fritz the average likes the same game-show bollocks all our lot like.
        As to what the Fuhrerine is planning, I have no idea at present. Lots of theories out there, but no facts. This is the way she works: keep everyone in the dark.

      • @BT
        I do make sure that my friends know what is going on. I met a lady the other day and she was talking about the necessity for incomes to be guaranteed for the next couple of years.

        You must remember that the Dutch economy is tightly regulated: there are prices set for fuel and electricity etc. and these are not normally allowed increases more than the official rates of inflation (allowing for raw material input of course). The economy here did take a beating from the US default/toxic assets scandal of 2007, but it has otherwise stood up fairly well. There is quite reasonable expectation amongst the Dutch that things should keep on as they are, or get a little better. Whatever the downsides of this tight regulation, it has seen off the dramatic swings that the UK economy suffers from.

        The bigger problem is that the Club Med have never lived in this style, yet they signed up for it willingly.

    • Totally stunned! How did the BBC allow that to slip through the net? Does this explain the sudden government interest in issuing 100 year bonds?

      • Dead right John. I have been wondering for some time what Paul Mason was up to. Newsnight has been deathly quiet on the matter. I thought maybe he gone over to the dark side with Stephanie. Revolution at GSachs and the BBC all in one day!!!

      • What’s odd is that it was written/posted on the 8th… I was sent the link… must be tucked away in a dark corner of the BBC site. Unless we all click through it…. ;¬)

      • Just found out that GFC stands for Great Financial Crisis. Maybe I’ve been out in the sticks too long but I think I prefer my version.

  6. Champions League, Quarter Final, First leg roundup, Wednesday, 14th March 2012.

    Panathinaikos 2, Manchester United 1.

    Two late goals from giant defender Venizelos gave Olympiakos a slender lead for the return leg at Old Trafford.

    Ward capped yet another fine captain’s performance with superb strike after 66 minutes, but a recurrence of a knee injury saw him leave the field shortly after his goal and the veteran midfielder must now be a real doubt for the vital home leg in a weeks’ time.

    With FC Porto winning comfortably away at the Bernabeu, United must hope for an improved display to remain on course for a semi-final against the Portugese champions and so keep alive their hopes of a dream Wembley final against the might of Barcelona, who trounced FC Lyon 4–0 at the Stade de Gerland.

    AC Milan comfortably eased past Bayern Munich 2–0 and have virtually guaranteed their semi-final spot against Pep Guardiola’s maestros.

    The Spanish giants are again the team to watch but, when the football world’s focus returns to the Iberian Peninsula, it will realise that the large, grey shape in the corner of the room is in fact a Spanish elephant.

  7. This has just been posted on the DT debt crisis live.

    12.00 The second Greek bailout has now been rubber-stamped – Jean-Claude Juncker, chairman of the eurozone finance ministers group, has issued a statement:

    All required national and parliamentary procedures have been finalized.

    His statement confirms the political agreement on the €130bn bailout agreed on Monday at the finance ministers meeting in Brussels.
    I just don’t knw who or whatto belive anymore…perhaps it is al bulls**t just to keep the markets happy.

  8. Although further debt has been identified and may become payable through “acceleration” it doesn’t follow that it would be paid anytime soon, if at all. The Greek default can be contained within the Eurozone and I’d be surprised if Greece was allowed to return to the Drachma. Brussels have their lackeys running the country for them and I seem to remember that they “retired” likely military dissenters a few months ago.
    All the EU threatening noises indicate tightening of the austerity screw while they drip feed just enough new funnymunny to keep Greece drifting along a month at a time. No EZ exit can be allowed because if one leaves so can others. There is too much political capital invested in european integration. Even the hint of failure is not an option. No one will be allowed to go against the flow. (the Spaniard who is “off message” would do well to watch his back) It is a one way street.

    The EZ will eventually crack but it will take a lot more than Greece to do it. The longer all this ponzi financial madness festers the greater the impact when it goes horribly wrong. When the EZ eventually implodes it might take the whole EU down with it.

  9. An excellent piece. I read the Louise Armitstead piece you referenced. Then I read the ‘comments’ section below that, in which someone –no doubt in order to help his fellow readers understand the true gravity of the situation– provided a helpful link to this article: GREEK DEFAULT: THE TROIKA PREPARES TO ENGAGE REVERSE GEAR…

  10. I believe in facts and not speculation. I originally came to your blog looking for facts about the “March default plan delivered to banks”. Since then i have seen no facts just premonitions.

    I would expect from you to have more research in what you post. One example is your surprise in the Rating Agencies selective default of Greece and then upgrade. This was common knowledge in the financial news since June that the PSI was announced. The agencies themselves have publicly announced that they will declare Greece in SD and then upgrade the new bonds. Search and you will be surprised.

    Also your insisting in the March default is becoming amusing. Check your facts, there is no 3 day bank holiday in March.There will be no Greek default in March. You can look for the next date.(Hint : June maybe?)

    All you provide is just some generic horoscope evaluation “Yeah nothing happened in March but.. wait…Greece will default one day”.

    I urge people to read twice and check everything they read three times. Do not read just titles. Find the facts. Sometimes they are there in plain view.

    Good bye

    • John Ward does us all an immense favour here, with his insight and his inside knowledge and I would suggest you bugger off to where you came from, and take your ugly face with you. Good bye!

    • To each his own SheepMonkeys. I love the speculation that’s why I visit this blog. As to your believing in “facts” this makes me think that you are younger and less cynical than myself.

      Good Luck.

    • The “collapseniks” indeed expected that the world financial system would have collapsed many times over since 2008. Their first mistake was to interpret the inherent contradictions of any and all social and economic structures as a reason for their imminent collapse. Their second mistake, was their belief that a solution cannot, as they define it, contain contradictions.
      Their third mistake was a vague belief that a solution should make the state of the system better than it was.

      But life (even science) is more complicated than that.
      I think you will agree that Greece was de facto bankrupt since the time it went out of the markets; it is now de jure bankrupt since it was declared so by ISDA and CDS will be paid.

      But then where’s the end of the world that the MSM and many bloggers predicted?
      It could be that everybody fell victim to fear-mongering and propaganda.
      Or that due to our Hollywood blockbuster mentality we erroneously expect that a whole system will be so kind as to unravel spectacularly within days.

      I don’t expect this: My worst fear is that this thing will go on for the next decade and people will slowly adapt and accept this “new reality”.

      After all, their whole argument is that what lies ahead “is” the reality. We should not forget that “for many years we were living above our means” (Agitprop should translate and repeat that to all OECD languages). We are in denial because we were living in a bubble world of entitlement, where luxuries like education, pensions, or meaningful pay were considered universal rights.
      If you accept and cooperate, you will see that problems are solved and no crisis remains anymore!

    • Very interesting link, kostis! For those who can’t be bothered to click, it’s a suggestion that Greece should abandon the euro, not for the drachma but instead for the dollar. Redenominating all contracts in dollars at a one to one ratio, this would give a one-time devaluation of 30 percent, but then a stable currency.

      It’s a rather wild idea, but perhaps not as unlikely as it first appears. It would probably be in the US interest to establish a firm foothold in that region, both in light of the supposed oil findings at the bottom of the Med and for strategic reasons concerning the Middle-East.

      • Yes I read it and rather liked the idea. Mainly because the irony of the Euro creators actually extending the reach of the dollar into western Europe when one of their main objectives was to try and compete with it is rather delicious. But I remember Russia pretty much worked on the dollar unofficially for some years in the ’90’s because the rouble was worthless. Maybe not as wild as it sounds.

  11. DT:- 16.19 ‘Another vacancy at Goldman Sachs now. Bill McDermott, head of the Institutional Defined Contribution business, is reportedly leaving the bank’. – Dominoe effect, rats leaving a sinking ship???

  12. Pingback: Greek Default: The Troika Prepares to Engage Reverse Gear

  13. Pingback: John Ward – Greek Default : The Troika Prepares To Engage Reverse Gear – 14 March 2012 | Lucas 2012 Infos

  14. “Regular Sloggers already know what my point is: these people are putting together alibis, and assembling a ‘case’ to justify pulling the plug some time soon.”–John Ward

    Agreed, but the antics and bond and credit manipulations would seem to create a major fiscal problem for the EU now and into the future. I suppose that the ECB can be spared some more QE IF Greece backs out soon, but that means they lose alms instantly and take some 40
    % hit on their currency compared to the euro.

    Methinks they played their sorry tunes on the hurdy-gurdy for all too long.

  15. If say for example Germany was planning to leave the Euro and reintroduce the DM there would be physical movement of large sealed boxes (someone needs to shift them) to banks and the issuing of sealed or encoded “do not open instructions”. It would be a large exercise so would be noticed. So if anything was going to happen, one might expect a couple of days notice due to leaks and observation. And hostile foreign powers will be looking and would decide on whether to leak -never mind the locals or accidents. So actually any move like this may come as a complete surprise – with the resultant chaos – as a better option??

  16. Found on Deutsche Mittelstands Nachrichten, this the heading:

    “Eurovisions

    Schäuble: “The worst is, up to 50%, behind us.”

    Published: 13.03.12, 22:55 | Up-dated: 14.03.12, 11:30 |

    After the meeting of the EU finance ministers, Wolfgang Schäuble and his French counterpart Baroin are in agreement that the reforms in Europe must be adhered to. The worst of the crisis is, however, over.”

    Unfortunately I don’t have time to translate the rest of it, some newly discovered genuine fairy tales from the Gebrüder Grimm must take priority!

    http://www.deutsche-mittelstands-nachrichten.de/2012/03/39737/

  17. Was there any confirmation to a previous rumour that Germany had ordered new DM printing plates and/or was actually printing DMs?

    • @Cornish

      To the best of my knowledge, none whatsoever.

      But, I have here a photo that I downloaded (can’t remember from where) of a pile of DM 100 banknotes. They are neatly packed in DM 10,000 bundles, and these are themselves also bundled together, possibly into DM 100,000 packages. The banderoles securing them are marked with the letters “BBk/LZB” – could this mean “Bundesbank/Landeszentralbank”? These packages have been stacked and 11 packages are to be clearly discerned in the photo.

      The serial numbers on the visible notes are; AG0159001A4 : AG0156001A3 : AA8079001Z2 : AG0039001A8.

      To be clearly seen on the labelling/packaging of all of them are the figures “14.05.10”. Is this a date reference (print date?) or could it mean something else?

      Whatever, either it’s a pukka gen photo that shouldn’t have got out or, if it is a PhotoShop fabrication, then it’s creator deserves the first prize! To me, it looks real – but then, I’m not an expert in these things.

      In regard to Bankrupt Taxpayers comment on secrecy in Argentina, if the date given above is the print date, then there is every likelihood that the banknotes (and coins) are already lodged in the vaults of the Landesbanks. The distribution could have taken place with routine transport – hence, nothing unusual to report. It could also have taken place without the majority of the LB employees knowing exactly what is in the vaults – how many of them would actually have access to it – so minimum chance of leaks?

      The LBs also have a wide network. Ours, in the Palatinate, is in Mainz, and I know that they do have a branch in Kaiserslautern. So, we may also assume they have branches in Trier, Koblenz, Ludwigshafen and other big towns. This facilitates the distribution down to small town/village level.

      So, all it needs now is for someone to fire the starting pistol. Could we hear it crack on Green Thursday?

      • For those of you who are interested in seeing that photo, I found it – http://www.ariva.de/image-ad77_4bec5e05_a320204

        To me it looks genuine. In which case, this means that the Germans were putting in contingency plans two years ago as the Greek crisis was beginning to escalate.

        Although these plans for the Deutsche Mark may never see the light of day, this seems to show that Merkel and co. have the ability to switch back to their former currency, should (or probably when) the eurozone falls apart.

  18. You know JW there is another scenario where all this ‘passes’ and they all claim “how excellent that our CDS contracts saved Europe. Now why don’t we let other folks place those, ahem, bets too, just like us — your wonderful ever fore-sight-full grandees.

    Then that will be reckoned what it cost to save Europe as new sources from everywhere else than before empty their rivers into derivative exchanges and five years from now, a youngster only 18 years old now will, at 23, believe they are investing in some marvelous instruments which they can cash in and out of at any time.

    Why not, and save the bother, I say.

  19. Pingback: BANK OF GREECE ‘PRINTING ITS OWN EUROS’ SAYS BELGIAN ECONOMIST | The Slog

  20. Pingback: EU HUBRIS: Dreaming is good, but somnambulism is dangerous | A diary of deception and distortion

  21. Pingback: John Ward – EU Hubris : Dreaming Is Good, But Somnambulism Is Dangerous – 20 July 2012 | Lucas 2012 Infos

  22. Pingback: EU HUBRIS: Dreaming is good, but somnambulism is dangerous / H ύβρις της Ε.Ε. : Tα όνειρα είναι καλά, αλλά η υπνοβασία επικίνδυνη « eleutheriellada

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