Greece Updates

[Cassandra Syndrome]

This country appears to be the canary in the mine, so it is worth checking it out on a regular basis. Its stock market plunged again today and its bond yields increased. Also there has been a 6 Billion Euro flight of capital from their banks. From today's WSJ

A key measure of default risk for developed-nation European sovereigns was set to close at a fresh high Monday, driven by further weakness in Greek, Portuguese, and Spanish credit default swaps.

The move comes as market participants look ahead to Thursday's meeting of European Union heads of state. Many market participants are looking to see if EU nations will declare some kind of direct or indirect financial support for the country, one the most highly indebted in Europe. Concerns over its high annual deficit relative to the size of its economy are spreading to other countries whose economies have been hard hit.

The SovX Western Europe index, which lets investors buy or sell default insurance on a basket of 15 sovereigns, was at 1.125 percentage point late in the European day, according to index owner Markit, compared with Friday's closing level of 1.06 percentage point. The index moved above a full percentage point for the first time on Thursday.

Portugal's sovereign CDS were at 2.42 percentage point, Greece's were at 4.30 percentage point, and Spain's at 1.73 percentage point, Markit data showed. All were wider compared with Friday's closing levels.

That means the annual cost of insuring €10 million ($13.7 million) of Portuguese government debt against default for five years was €242,000, while it was €430,000 for Greek debt and €173,000 for Spanish debt. CDS are derivatives that function like a default insurance contract for debt.

"These three were the main underperformers in the SovX index today," Suki Mann, credit strategist at Société Générale SA, said in a note. "The Greece/Portugal/Spain story has taken on the role of the driving force for sentiment towards risky assets."

The cost of insuring the debt of euro-zone members with large budget deficits has been rising this year, as they come under pressure to cut deficits and on worries about their borrowing costs. CDS moves, which are highly visible and widely watched, can become a barometer of investor worries than itself can generate more anxiety, spilling over to other markets.

Some have noted that the swaps sometimes suggest that countries are headed for a default though yields on bonds issued by those countries don't indicate such a dire outcome.

[Cassandra Syndrome]

From Zero Hedge

Remember the proverbial run on the bank? Well, that was the norm (or rather the outlier) before governments decided to backstop entire financial industries residing within their territory. As a result, the post-Lehman version of "the bank run" will henceforth be referred to as "the country run" and for an example of one in practice, look no further than Greece. The Guardian reports that investors have pulled a stunning €8-10 billion since the Greek crisis commenced in earnest last November. If true, this is the beginning of the end for the troubled EMU-member country.


"In the last four to six weeks a lot of money has been moved abroad; I've heard extraordinary figures," analyst, Kostas Panagopoulos said.



"People are moving funds either because they don't trust our banking system, want to avoid what they fear will be taxes on deposits or are simply anxious about the future of our economy."

What is ironic is the previously discussed pervasive tax fraud in the country where very few resident actually declare their true income. As a result the implication of these sudden withdrawals on the country banking system is likely exponentially magnified:

While a fifth of the population lives beneath the poverty line, some 20% of Greeks are believed to earn more than €100,000 annually – even if, according to income tax records, 90% declare salaries of less than €30,000 a year.



"Greece has a lot of rich people who are not being taxed properly because there is so much tax evasion," finance minister Giorgos Papaconstantinou, told the Observer. "If you look at the actual numbers, you will see that the number of people declaring over €100,000 a year is roughly 15,000," he said. "I don't think that there is anyone in this country who believes there are only 15,000 Greeks earning more than €100,000 a year."

And as if the Greek population needed any more reasons to deteset the current economic fiasco, and to draw even more distinct lines of social separation:

The growing flight of funds from Greece has whipped up much resentment among the public. "It's revolting," said one popular radio chat-show host last week. "After pillaging the country, they flee with their ill-gotten gains at the very mention of the word tax."

If you will recall a mere 15 months back, the one factor that truuly excerbated the pre and post-Lehman fiasco, both domestically and globally, was investors' loss of conifdence in the system: first in the deposit custodians and then in money markets themselves. As the financial system is never, by definition, prepared for massive fund flows in the outward bound direction, this is the greatest nightmare of any regulator or any central bank. If indeed the money rush out of Greece has commenced, then it is too late to save the country, no matter what Papandreou or Almunia will say: the only voice that matters is that of the depositor, and what is being said is the polar opposite of the claims of those who continue lying and telling us that everything is fine.

Putting the €10 billion number in perspective: Greece is facing roughly €8 billion in near-term maturities in April and May each. This is Greece, not America, and €10 billion is still a massive number. The latest miraculous Greek bond issue, which was supposed to sound the "all clear" call, was for €8 billion. Investors in that particular GGB are already underwater.

The Run On Greece Is Here: Investors Pull Out ?10 Billion From The Troubled Country; Crisis Escalation Approaches | zero hedge

[Mitsui2]

Janey! And I'm supposed to be going there at the end of March. Will it be a case of "out of the frying pan...", I wonder?

[Cassandra Syndrome]

Goldman Snakes have cut Greek and Italian banks to sell.

Goldman cuts Greek and Italian banks to sell - MarketWatch

[Breadan O'Connor]

Goldman Snakes have cut Greek and Italian banks to sell.

Goldman cuts Greek and Italian banks to sell - MarketWatch

I wonder if this will be like 1992 when there was a domino effect forcing countries out of the ERM?

[orbit]

I wonder if this will be like 1992 when there was a domino effect forcing countries out of the ERM?

There's a big difference with 1992. Back then, every country still had its own currency, and the system was a lot easier to break. Nobody even knows how a country would exit the Euro today, meaning that a bailout might be the easier option.

[SilverSpurs]

There's a big difference with 1992. Back then, every country still had its own currency, and the system was a lot easier to break. Nobody even knows how a country would exit the Euro today, meaning that a bailout might be the easier option.

That is true, leaving ERM could be done at the stroke of a pen. Leaving the euro is amuch more ambitious exercise yet remains possible. A negotiated withdrawal would be necessary in reality as unilateral withdrawal would be extremely difficult.
A negotiated withdrawal could work like this.
Withdrawing country agrees an exit rate with the rest of the eurozone. The ECB guarantees to buy the new currency at that rate for as long as the peg is maintained. Then when the time is right the peg is broken and the ECB withdraws the guarantee.

[orbit]

I can't see any scenario where sane bank depositors will leave their money in a local soft currency. They will avail of the ECB guarantee and convert it to euros in a foreign bank. I couldn't see the ECB agreeing to something like this either.

[eoghanacht]

Why am i not surprised to realise that, if this were any other country like say, Iran. They'd be reporting this as a country on the brink of an abiss, which ofcourse Greece is.

[Bi ciuin]

Watching Jeff Randall last night and he was talking to Prof Stiglitz Nobel prize winner.

He claimed that Greece was in a good posiiton and could pay of its debts, and all this talk of bailouts and problems was just scare mongering.

He said Greece's political leaders are striking the right balance between cutting public debt and stimulating economic growth.

Watch the interview on the link below.

Jeff Randall Live: Professor Joseph Stiglitz Says Eurozone Governments Should 'Burn' Speculators | Business | Sky News