One really has to admire ECB president Trichet.
His ability to bat away difficult questions without saying anything remotely controversial is phenomenal.
That said, there are some points worth picking up on from Thursday’s presser, especially with regards to Greece.
Via Reuters:
TRICHET – WE EXCLUDE OURSELVES FROM ALL SCENARIOS WHICH ARE NOT PURELY VOLUNTARY
TRICHET – CALL FOR AVOIDING ANY CREDIT EVENT, SELECTIVE DEFAULT
TRICHET, ASKED IF AT LOGGERHEADS WITH GERMAN FINANCE MINISTER, SAYS HAS NO QUAREL WITH ANYBODY
TRICHET, ASKED ON VOLUNTARY PRIVATE SECTOR INVOLVEMENT, SAYS WE ARE NOT DESIGNING ANYTHING
According to Marc Ostwald at Monument Securities that translates roughly as…
… there is no Vienna, or indeed other form of voluntary rescheduling, which the ECB can envisage as NOT being construed to be a credit event.
Which is problematic to say the least.
Given the ECB is one part of the Troika, this is a very clear, if indirect NEIN to Herr Schaeuble. That being the case, the sharp widening in peripheral spreads and the rally in Bunds is wholly justified, given that a solution for Greece is still not on the horizon, and thus the risk of a ‘hard restructuring’ remains very elevated.
But with President Trichet it is sometimes more important to watch what he does rather than listen to what he says. After all, who can forget the time Mr President told us that the ECB had not discussed buying sovereign bonds just days before they announced they would be buying sovereign. How we laughed.
So just because Mr Trichet says “nein” or “non” today doesn’t mean that the ECB won’t back down on a Greek restructuring/re-profiling at a later date, observes Gary Jenkins at Evolution Securities.
And let’s face it, something has to give unless European wants to undertake a Lehman Brothers style experiment, says Jenkins.
With the German government making it clear that bondholders have to share the pain something has to give. If they are not careful it might be Greece via the worst case scenario which would be an uncontrolled default. Given that it is unlikely that anyone in Europe wants to undertake a Lehmans like experiment with an EU sovereign one would think that there would be some flexibility and a negotiated agreement by the EU /ECB /IMF to keep Greece afloat. But the uncertainty because of the impasse at the top in Europe is reflected in the movement in Greek short dated debt today. Most investors I speak to (over 90% in our poll last year) expect Greece to default at some stage. But there is a big difference between a controlled default managed by the EU / ECB / IMF at a time of their choosing and an uncontrolled default which would have huge implications for the likes of Irish and Portuguese bonds.
So who will blink first, Trichet or Schauble?
Perhaps the latest warning from Fitch might help focus the minds.
Again, via Reuters.
FITCH SAYS HARD TO IMAGINE BONDHOLDERS HAVING MOTIVATION TO AGREE TO GREEK DEBT ROLLOVER
FITCH SAYS SOLUTION SUGGESTED BY GERMAN FINMIN ON GREECE WOULD LIKELY BE CONSIDERED DISTRESSED DEBT EXCHANGE
FITCH SAYS GREECE COULD BE DOWNGRADED TO ‘C’ AS A RESULT OF DISTRESSED DEBT EXCHANGE
FITCH SAYS PORTUGAL, IRELAND RATINGS WOULD BE PUT ON REVIEW IN CASE OF GREEK DEFAULT
FITCH SAYS PRIVATE SECTOR INVOLVEMENT BEFORE 2013 WOULD MARK “SIGNIFICANT SHIFT” IN EU POLICY
Then again, maybe not.
Related link:
Dear ECB — get lost, yours, Wolfgang – FT Alphaville
Dear Herr Schaeuble – FT Alphaville