There is much conservative opinion that Greece will stay with the Euro.
http://www.zerohedge.com/news/referendum-day-decide-greeks-future-124
Referendum Day To Decide Greek's Future Is 12/4
Just headlines, via Bloomberg, for now as Juncker and Sarkozy play good-cop / bad-cop:
and then Angie butted in:*SARKOZY SAYS REFERENDUM WILL DECIDE GREECE'S EURO FUTURE
*SARKOZY SAYS REFERENDUM WILL BE AROUND DEC. 4 OR DEC. 5
*SARKOZY SAYS CAN'T HAVE 'PROLONGED PERIOD OF UNCERTAINTY'
*SARKOZY SAYS 'WE ARE READY TO AID GREECE'
*SARKOZY SAYS GREECE WON'T GET `SINGLE CENT' WITHOUT ENACTMENT
*JUNCKER SAYS AID PAYMENT DEPENDS ON GREEK VOTE
*GREECE HAS `LOST 8 BILLION. THAT IS A PITY,' JUNCKER SAYS
*MERKEL SAYS GREEK REFERENDUM IS MASSIVE CHANGE OF SITUATION
*MERKEL SAYS FIREWALL MEASURES MUST BE SPEEDED UP
*MERKEL SAYS KEEPING EURO STABLE IS THE PRIORITY
*MERKEL SAYS EU EXPECTS POLITICAL CONSENSUS IN GREECE
*MERKEL SAYS GREECE MUST ACCEPT FULL DEAL TO GET NEXT TRANCHE
Christine then added, rather passive-aggressively (given out earlier note on Greek maturities):
Initial reaction is ES selling off 3-4pts and very slight downtick in EUR*IMF'S LAGARDE SAYS HOPES GREECE TRANCHE CAN BE CLOSED MID-DEC
UPDATE: ES -6pts and EUR -35pips - some CONTEXT for where markets stand based on ES rally today as broad risk-assets generally sold off:
http://www.guardian.co.uk/world/2011/nov/02/greece-ultimatum-austerity-forego-eu
Greece gets ultimatum: accept austerity plan or forgo extra bailout cash
IMF and EU threaten to withhold €8bn of aid following Greek prime minister's pledge to hold referendum
- guardian.co.uk,
- Article history
Jean-Claude Juncker, Luxembourg's PM, with the German chancellor, Angela Merkel, in Cannes. Juncker issued a stark warning that the next portion of the bailout package may not be released. Photograph: Lionel Bonaventure/AFP/Getty Images
Greece has been given an ultimatum that it will get no more money from the European Union and International Monetary Fund until its people have voted to accept the austerity measures demanded by the bailout package.
The latest tranche of bailout aid, worth €8bn (£7bn) and agreed just two weeks ago, is seen as vital for ensuring that Greek public sector workers can continue to be paid. But it will now be delayed until after the country decides in a referendum whether it accepts the new rescue package or even wants to stay in the euro.
The threat to send Greece closer to bankruptcy emerged on the margins of the G20 summit in Cannes – due to start on Thursday – and follows a blunt warning from Jean-Claude Juncker, chairman of the eurogroup, that the sixth tranche of the original €110bn bailout was now in jeopardy.
Looks like blackmail to me.
http://ftalphaville.ft.com/blog/
Kicking the Can(nes)
Under-promise then under-deliver. Then watch markets tank. That’s the prognosis for the G20 summit, courtesy of Capital Economics’ crystal ball.After poo-pooing suggestions Bric nations will ride to the eurozone’s rescue or take constructive measures to resolve global imbalances, the research house made what we think is a sensible prediction on Wednesday:
So, what will the G20 agree in Cannes? No doubt the leaders will repeat the message of their Finance Ministers who said on 15th October that the euro-zone has the primary responsibility for solving its own problems. In addition, they may agree to look at the case for additional IMF resources, and perhaps the creation of a new IMF “facility” which could support countries such as Italy and Spain if needed. But we doubt any of this would reassure the markets that the crisis is under control.What they mean by a new IMF “facility” we don’t quite know. But if it’s a liquidity facility, we reckon this could be dangerous. First, IMF funding is limited and liquidity should be channelled to emerging economies rather than richer nations that still have the resources. And, as global monetary wonks have previously pointed out, eligibility criteria for liquidity facilities should surely be fleshed out before a given line is activated to bring in some fiscal discipline and tell markets what the rules are. In any event, should emerging markets have to pay the price for the ECB’s reluctance to act — or be seen to be acting — as the liquidity lender of last resort for the eurozone?
Back to the Capital Economics’ prognosis. Here’s more:
The summit will also address a number of less pressing issues which have been on its agenda for months or years. Unfortunately, there is still no meeting of minds on the issue of global imbalances. The Chinese government will be able to shrug off any criticism of its trade surplus, particularly as it has fallen so far this year (albeit largely due to the impact of higher commodity prices). Moreover, Japan’s unilateral intervention to push down the yen this week will make it even more difficult than usual for the rest of the G20 to unite in putting pressure on Beijing over its managed exchange rate.The creaking in-tray just creakier:
Otherwise, France will be keen to claim that it is making progress on the ragbag of other objectives it announced with some fanfare before taking on the G20 presidency last January. These include reform of the international monetary system and combating commodity price volatility, as well as the Doha trade round and the financial transactions tax. But the reality is that little progress has been made here either. There is likely to be agreement on a process which could ultimately lead to inclusion of the renminbi in the SDR basket, though not before the RMB is fully convertible, which is still years away. And the only concrete action on the issue of commodity prices may be an initiative to improve data collection. All in all, then, the summit looks set to achieve precious little.In other words, ineffective-talking-shop alert.
Related links:
Eurozone crisis to divert leaders at G20 – FT
Yen move takes G20 by surprise – FT
China to Europe: that’s a sure nice EFSF you have there – FT
Hello, Greek mopping-up law?
Reuters, on signs of a push to make Greece’s debt restructuring coercive rather than “voluntary”…Athens could squeeze out bondholders by changing the law so that the terms of any untendered bonds would have the same terms as the new ones, if a majority of debtholders — for instance 75 percent — voted in favour of the exchange.
Greece could change its laws, which for the largest part do not contain so-called Collective Action Clauses (CAC) to squeeze out minorities, and introduce an aggregated rule imposing new conditions on outstanding bonds.
“They’ve not yet come to that point. But you can look down the road and you can see pretty clearly where this thing is going to shake out,” the person [familiar with negotiations] said.
“It would be a very mild use of legislative power, and obviously far milder than passing a law saying (everything worth) 100 now is (worth) 50.”
Resistance against any form of CAC had largely come from the European Central Bank (ECB) and the French government, but these were now also leaning towards their use, the source said: “voluntary has become code word for CAC”.Note that the official creditors could still easily squash this idea, if they still don’t like allowing CDS to trigger.
“It is the same meaning of voluntary that would be true if I stepped out on the 38th floor (of my office), I would voluntarily subscribe to the law of gravity. The splat would be the same,” the person said.
But…
From “How to Restructure Greek Debt” — a truly brilliant 2010 paper from Lee Buchheit and G. Mitu Gulati:
One legislative measure that might be perceived as balanced and proportional in these circumstances, however, would be to enact what amounts to a statutory collective action clause. It could operate in this way: local law would be changed to say that if the overall exchange offer is supported by a supermajority of affected debtholders (say, 75%, to use the conventional CAC threshold), then the terms of any untendered local law bonds would automatically be amended so that their payment terms (maturity profile and interest rate) match those of one of the new instruments being issued in the exchange.
Such a law, let’s call it a “Mopping-Up Law”, would thus operate in the manner of a contractual collective action clause in a syndicated debt instrument. Once the supermajority of creditors is persuaded to support an amendment to the payment terms of the instrument, their decision automatically binds any dissident minority.Prescient or what!
Lee Buchheit’s firm, Cleary Gottlieb Steen & Hamilton, currently advises the Greek government.
Related link:
Who wants to be a Greek bond (versus CDS) holdout? – FT Alphaville
Cash in the Attic [updated]
DJ: Greek Govt Has Sufficient Cash To Last Until Dec -SourceYes, although when you get to December…
Update — Not so sure about December… Reuters citing an EU source on the November payment of the sixth bailout tranche:
The sooner Greece holds the referendum, the sooner the sixth tranche will be paid. But right now, it isn’t going to be paid.And an IMF board source:
The board would not want to give money to Greece and then wonder what will happen…
And the G20 total returns winner is…
Something to take G20 Cannes delegates’ minds off Greece…
How’s this for evidence that the emerging markets growth story is overblown? Of all the G20 countries, the US would have given you the greatest equity returns over the past year,
How’s this for evidence that the emerging markets growth story is overblown? Of all the G20 countries, the US would have given you the greatest equity returns over the past year,
Step away from the Greek political risk
If you’re trying to price political risk perfectly… you’re doing it wrong, we’d submit. The Greek referendum’s a case in point.The referendum came out of the blue. It might not even go ahead, pending a government collapse or early elections. So,
http://www.telegraph.co.uk/finance/financialcrisis/8866261/Nicolas-Sarkozy-tells-Greece-If-you-dont-stick-to-the-rules-leave-the-eurozone.html
11:55PM GMT 02 Nov 2011
Comment The Greek prime minister announced the decision in Cannes after Angela Merkel and Nicolas Sarkozy gave him an ultimatum that Greece had to “abide by the rules” of the Brussels bail-out agreement – “or leave the eurozone”.
Mr Papandreou said that that “being part of the eurozone means having many rights and also obligations”. He said that the debt crisis deal agreed in Brussels a week ago would be “difficult” for Greece and while he “hoped for a yes vote” he wanted the “Greek people to speak”.
He added: "I believe in benefits for growth, lowering our burden of debt, a strong package of support for the next few years. We can put our house in order and make a viable economy. It is important that the Greek people make decisions on important developments. They are, I believe, mature and wise enough to make this decision.
"We're very proud to be part of the eurozone. But this comes with obligations and it is crucial we show the world we can live up to those obligations.
"We could hold the referndum on December 4. A positive decision by the Greek people is not only positive for Greece but for Europe. The Greek people want us to be in eurozone - I want them to speak and they will speak soon>"
Mr Sarkozy said that European leaders were powerless to stop Greece holding a referendum but he said the bail-out agreement was conditional “according to certain rules”. He said it was “up to them whether they accept the rules or not”.
MS Merkel added that they would "not not abandon the principles of democracy. We cannot put at stake the great work of the unification of the euro."
"The referendum is a question of whether Greece wants to be in eurozone with the euro currency - that is the issue," she said.
The German Chancellor and French President, who summoned Mr Papandreou to crisis talks ahead of the G20 meeting in Cannes that starts on Thursday, to tell him that the debt restructuring and austerity measures agreed a week ago were not negotiable. The leaders threatened to withhold €8bn (£6.9bn) of international aid from Greece until Athens accepted the terms.
Mr Papandreou’s refusal to bow to their pressure is likely to rattled global markets.
Hours before the Cannes talks, the European Financial Stability Facility (EFSF) was forced to pull an auction to raise €3bn of debt because investors felt uncertain about the terms. It was an inauspicious start for the vital bail-out fund which is supposed to be capable of raising up to €1trillion.
The Italian cabinet held an emergency meeting in a bid to agree economic reforms which Silvio Berlusconi promised as part of the Brussels deal. As the cost of insuring Italian debt against default remained at record highs of 6.1pc, Giorgio Napolitano, the Italian president, appeared to threatened to bring down the government if the reforms were not agreed. Ignazio Visco, the new head of the Bank of Italy, urged Mr Berlusconi to mee the demands. He said it was “necessary to proceed resolutely” in order to achieve “the lasting reduction of sovereign risk and preserve the stability of the financial system”.
Mr Sarkozy had a “working dinner” in Cannes with President Hu Jintao as part of his on-going efforts to attract Chinese investment in eurozone debt.
Meanwhile, rumours swept the markets that France could lose its AAA credit rating after economic data revealed that the eurozone economies are stagnating.
The Markit Eurozone Manufacturing Purchasing Managers Index (PMI) for October fell to 47.1 down from 48.5 in September, where any number below 50 shows contraction. Standard & Poor’s recently warned it would cut France’s rating by up to two notches if there is a recession in the eurozone. France’s data, at 48.5, was better than that of Greece, Italy and Spain and not far behind Germany. But the spread between French sovereign bonds and German bunds soared to it widest point since the euro was launched amid fears of a downgrade - which in turn could de-rail the terms of European rescue agreements.
Even so global stockmarkets were calmer following the rout on Tuesday. The Stoxx Europe 600 clawed up 0.9pc, in Germany the DAX gained 2.3pc, in France the CAC rose 1.4pc and in London the FTSE 100 added 1.2pc.
There were more dire warnings that a Greek referendum, expected in December, could trigger the break-up of the eurozone. Mr Papandreou faces a vote of confidence on Thursday. But traders were appeased by assurances from leaders that prolonged uncertainty would not be tolerated.
Francois Fillon, the French prime minister, said: “Europe cannot be kept waiting for weeks for the outcome of the referendum. The Greeks must say, rapidly and unambiguously, whether or not they will choose to remain in the eurozone.”
MS Merkel added that they would "not not abandon the principles of democracy. We cannot put at stake the great work of the unification of the euro."
"The referendum is a question of whether Greece wants to be in eurozone with the euro currency - that is the issue," she said.
The German Chancellor and French President, who summoned Mr Papandreou to crisis talks ahead of the G20 meeting in Cannes that starts on Thursday, to tell him that the debt restructuring and austerity measures agreed a week ago were not negotiable. The leaders threatened to withhold €8bn (£6.9bn) of international aid from Greece until Athens accepted the terms.
Mr Papandreou’s refusal to bow to their pressure is likely to rattled global markets.
Hours before the Cannes talks, the European Financial Stability Facility (EFSF) was forced to pull an auction to raise €3bn of debt because investors felt uncertain about the terms. It was an inauspicious start for the vital bail-out fund which is supposed to be capable of raising up to €1trillion.
The Italian cabinet held an emergency meeting in a bid to agree economic reforms which Silvio Berlusconi promised as part of the Brussels deal. As the cost of insuring Italian debt against default remained at record highs of 6.1pc, Giorgio Napolitano, the Italian president, appeared to threatened to bring down the government if the reforms were not agreed. Ignazio Visco, the new head of the Bank of Italy, urged Mr Berlusconi to mee the demands. He said it was “necessary to proceed resolutely” in order to achieve “the lasting reduction of sovereign risk and preserve the stability of the financial system”.
Mr Sarkozy had a “working dinner” in Cannes with President Hu Jintao as part of his on-going efforts to attract Chinese investment in eurozone debt.
Meanwhile, rumours swept the markets that France could lose its AAA credit rating after economic data revealed that the eurozone economies are stagnating.
The Markit Eurozone Manufacturing Purchasing Managers Index (PMI) for October fell to 47.1 down from 48.5 in September, where any number below 50 shows contraction. Standard & Poor’s recently warned it would cut France’s rating by up to two notches if there is a recession in the eurozone. France’s data, at 48.5, was better than that of Greece, Italy and Spain and not far behind Germany. But the spread between French sovereign bonds and German bunds soared to it widest point since the euro was launched amid fears of a downgrade - which in turn could de-rail the terms of European rescue agreements.
Even so global stockmarkets were calmer following the rout on Tuesday. The Stoxx Europe 600 clawed up 0.9pc, in Germany the DAX gained 2.3pc, in France the CAC rose 1.4pc and in London the FTSE 100 added 1.2pc.
There were more dire warnings that a Greek referendum, expected in December, could trigger the break-up of the eurozone. Mr Papandreou faces a vote of confidence on Thursday. But traders were appeased by assurances from leaders that prolonged uncertainty would not be tolerated.
Francois Fillon, the French prime minister, said: “Europe cannot be kept waiting for weeks for the outcome of the referendum. The Greeks must say, rapidly and unambiguously, whether or not they will choose to remain in the eurozone.”
Italy's 'shock therapy' as eurozone manufacturing buckles
Europe is sliding into a full-blown industrial recession with contraction spreading to Germany and a drastic decline under way in Italy, greatly complicating efforts to contain the region’s debt crisis.
A portrait of Italian Prime minister Silvio Berlusconi on a billboard that reads 'More taxes for all', while public employees and students march against the government's economic measures Photo: AFP
Markit’s manufacturing index for Euroland dropped well below the break-even reading of 50 in October. The data for Italy plunged five points to 43.3, the biggest drop since the survey began in the 1990s.
“Italy is a serious concern. Total and export new orders collapsed,” said Francois Cabau from Barclays Capital. Italy’s economy is almost certainly in a double-dip recession already, exacerbating the country’s fragile debt dynamics.
Manufacturing data for the eurozone as a whole showed the fastest decline since mid-2009 in new orders and export orders. Germany has at last tipped over into contraction as markets cool in Asia.
Italy’s premier Silvio Berlusconi was closeted with top ministers on Wednesday night, drawing up “shock therapy” measures in time for Thursday’s G20 summit in Cannes.
Italy’s press reported the drastic steps to be pushed through by decree may include levies on bank accounts, as occurred during the ERM crisis in July 1992 as a last-ditch move to save the lira. The hated policy amounted to wealth confiscation and failed to stop Italy being blown out of the system two months later. Plans for some form of property wealth tax have also been mooted.
Such one-off moves do nothing to lift Italy out of its stagnation trap. The country is suffering the delayed effects of a 30pc to 40pc loss of labour competitiveness against Germany within EMU, an overvalued euro externally against China, and a 70pc collapse in foreign direct investment (FDI) flows into Italian plant since 2007.
Capital flight from Italy has become a grave threat. The central bank reported a €21bn (£18bn) exodus in August, following a €20bn loss in July. “I fear these figures are likely to get worse, “ said Rony Hamaui from Milan’s Catholic University.
It is unclear whether Mr Berlusconi’s coalition can hold together if he agrees to EU demands for sweeping pension and labour reform. Parliament has already passed a €55bn austerity package intended to balance the budget by 2013.
Northern League leader Umberto Bossi threatened to set off “revolution” if money is taken from pensioners to bail out Rome, a reminder his party began life calling for an independent state of “Padania” in the North.
The skirmishes came as president Giorgio Napolitano summoned key party leaders for urgent talks and hinted at the drastic step of appointing a salvation government.
“The country is in danger,” said Emma Marcegaglia, head of the business lobby Confindustria. “If the government is not able to agree on reforms tonight, the implications are self-evident.”
Yields on 10-year Italian debt fell back slightly to 6.18pc after nearing danger levels earlier this week. The country has been first in the firing line following Greece’s decision to hold a referendum on Europe’s rescue package, a move that threatens to paralyse each component of the summit deal and delay the EU’s €1 trillion fund (EFSF) for months.
“Contagion to Italy is a whole new ball game, so everybody is fixated on Italian yields,” said David Bloom from HSBC. “The idea behind the Greek bail-out is to keep the pin firmly in the grenade.”
Irish finance minister Michael Noonan said the European Central Bank (ECB) will have to come to the rescue. “The firewall to prevent contagion spreading to countries like Italy and Spain is not yet in place. They need to go into the market and say they have a wall of money and, no matter how much speculation there is, keep buying Italian bonds. I think they will do that. They don’t have any choice,” he said.
The ECB is loathe to take on this task. Existing bond purchases already face a legal challenge at the European Court for breach of the Lisbon Treaty. Germany’s president has denounced the action as illegal and the Bundestag backed the bail-out on the condition the ECB pulls back from bond support.
Mr Bloom at HSBC said market fears may be overblown. “We remain optimistic. Europe has already held 14 summits and will hold another 14 if necessary. They are showing a cast-iron will to do whatever it takes to resolve it,” he said.
“The good news is that Italy’s debt to GDP ration is stable, nor rising. It has been running a primary budget surplus for the past five years, unlike the UK or the US that have to borrow to cover expenditure. The bad news is that the debt is enormous.”
Capital flight from Italy has become a grave threat. The central bank reported a €21bn (£18bn) exodus in August, following a €20bn loss in July. “I fear these figures are likely to get worse, “ said Rony Hamaui from Milan’s Catholic University.
It is unclear whether Mr Berlusconi’s coalition can hold together if he agrees to EU demands for sweeping pension and labour reform. Parliament has already passed a €55bn austerity package intended to balance the budget by 2013.
Northern League leader Umberto Bossi threatened to set off “revolution” if money is taken from pensioners to bail out Rome, a reminder his party began life calling for an independent state of “Padania” in the North.
The skirmishes came as president Giorgio Napolitano summoned key party leaders for urgent talks and hinted at the drastic step of appointing a salvation government.
“The country is in danger,” said Emma Marcegaglia, head of the business lobby Confindustria. “If the government is not able to agree on reforms tonight, the implications are self-evident.”
Yields on 10-year Italian debt fell back slightly to 6.18pc after nearing danger levels earlier this week. The country has been first in the firing line following Greece’s decision to hold a referendum on Europe’s rescue package, a move that threatens to paralyse each component of the summit deal and delay the EU’s €1 trillion fund (EFSF) for months.
“Contagion to Italy is a whole new ball game, so everybody is fixated on Italian yields,” said David Bloom from HSBC. “The idea behind the Greek bail-out is to keep the pin firmly in the grenade.”
Irish finance minister Michael Noonan said the European Central Bank (ECB) will have to come to the rescue. “The firewall to prevent contagion spreading to countries like Italy and Spain is not yet in place. They need to go into the market and say they have a wall of money and, no matter how much speculation there is, keep buying Italian bonds. I think they will do that. They don’t have any choice,” he said.
The ECB is loathe to take on this task. Existing bond purchases already face a legal challenge at the European Court for breach of the Lisbon Treaty. Germany’s president has denounced the action as illegal and the Bundestag backed the bail-out on the condition the ECB pulls back from bond support.
Mr Bloom at HSBC said market fears may be overblown. “We remain optimistic. Europe has already held 14 summits and will hold another 14 if necessary. They are showing a cast-iron will to do whatever it takes to resolve it,” he said.
“The good news is that Italy’s debt to GDP ration is stable, nor rising. It has been running a primary budget surplus for the past five years, unlike the UK or the US that have to borrow to cover expenditure. The bad news is that the debt is enormous.”
.
It really is a house of cards. When it falls it will take the U.S. banks with it.
The FDIC will protect the depositors. The bond holders are zombies.
