Do the German bloggers fuming about US hedge funds and other assorted speculators seemingly landing Germany with an €8.4bn Greek bailout bill realise that this is just for the current year?
From Tagesschau, via Google translate:
In New York, some hedge fund managers now celebrating in a champagne mood: Recently they met at a posh address of the U.S. metropolis to the parade – to debate how to force the euro by Greece-crisis on the best in the knee. Das hat sich ausgezahlt: Binnen weniger Wochen ist es ihnen gelungen, durch immer neue Gerüchte und Spekulationen über die ohnehin marode Lage in Griechenland Athen sturmreif zu schießen. It paid off: within a few weeks, they have succeeded, always through new rumors and speculation on the already ailing, located in Athens Greece ripe to shoot. Jetzt blieb Hellas nichts anderes übrig, als zu kapitulieren. Now Greece had no choice but to capitulate as. Damit haben die Spekulanten das geschafft, was sie wollten – die Situation so zuzuspitzen, dass die Europäische Union nun Staatshilfen zahlen muss und der Euro kräftig an Wert verliert. So that the speculators have done what they wanted – to aggravate the situation so that the European Union now has to pay state aids and the strong euro is losing value.
What these guys need is a conspiracy — like The Conspiracy of the Missing Full Stop...
Here’s Julian Callow, writing in Barclays Capital’s Euro Weeky (highlights ours):
In the 11 April statement, the package is described as a three-year package, with euro area member states covering ‘up to €30bn in the first year’ (with the IMF contribution assumed to be between €10bn and €15bn). There has been no other official information about the subsequent years (with the ECB’s Weber denying a €80bn European package), but the 11 April statement mentioned that ‘Financial support for the following years will be decided upon the agreement of the joint programme’ – conspiracy theorists might focus on the fact there is no period after that word in the statement, suggesting some late changes). There could thus be quite a few headlines on this in the near term, which will keep the markets guessing about the length and total size of the help, and the political commitment of euro area members.
There is an an assumption now in financial markets that however country-level short-term politicking pans out in the Eurozone, Greece can count on access to funds that will allow it to avoid default over the next few weeks and months.
But next year and the year after remains another matter. In fact, gross Greek funding requirements through to the end of 2012 run to €110bn – and almost three-quarters of that is to cover redemptions.
Neither the IMF – nor ordinary Germans, French or Italians – are going to want that particular bill. For Greece, longer-term issues of solvency and the threat of a debt restructuring have not gone away.
Andrew Garthwaite at Credit Suisse is no less alarming. From his latest Global equity strategy note:
If there is a voluntary default in Greece, there needs to be a huge IMF/EU backstop for the rest of peripheral Europe in order to avoid contagion. We do not think Spain is anywhere close to being in the same position as Greece. The key barometer of contagion will be the Spanish/Bund spread which at the moment is only at 90bp. If there is involuntary default in Greece without any ring-fencing, this could lead to rolling attacks on the rest of peripheral Europe as well as de-leveraging (cf Russia August 1998). On our estimates foreigners own about 70-80% of Greek debt and we estimate using BIS data that core European banks own about $70bn of Greek public sector debt…
Garthwaite doesn’t specify how big that “backstop” might need to be, other than describing it as “huge.” And in any case he thinks the chances of contagion to the likes of Spain unlikely, if only because there is the Greek example to remind the Spanish electorate what will happen if the country does not achieve a suitable deficit reduction.
But the “ifs” are piling up here, as the CS analyst seems to concede:
The key barometer remains the Spanish Bond / Bund spreads, which still remains under good control at 90bp over Germany. Greece is only 2% of European GDP. If the crisis spreads to Spain (10% of European GDP), then the consequences are much more severe.
Spain is clearly TBTF; the possible implications of a Greek default are being discussed in terms of ‘an endgame for the eurozone‘. How long before we’re debating whether to cap the size of states?
Related links:
First thoughts on Greek aid activation – FT Alphaville
Guest post: Mohamed El-Erian on the worsening Greek problem – FT Alphaville
The Germans and the Greeks – FT Alphaville