Acropolis apocalypse?

Ratings agency may cry ‘default’; political shambles spreads to Portugal

The Wall Street Journal reports that Euro-zone governments have reached a tentative deal on a new financing package for Greece. But it will seek roughly €30 billion in contributions from the country’s private-sector creditors, senior euro-zone officials said Saturday. To be exact, Brussels will ask Greece’s creditors to exchange their due debt for paper with a longer maturity.

The process – set to begin as early as July – will alienate ratings agency Standard & Poors, which clearly stated last Friday that for issuers rated at Greek junk level, a debt exchange would be seen as default…..if creditors received securities with terms less favorable than those they already have. The Slog said yesterday that this would cause a clash; with 10-year Greek debt yielding 15%, and two-year debt yielding over 20%, that S&P ‘default interpretation is 99% certain to apply under the new scheme.

Bloomberg similarly recounts that EU officials have prepared the new aid package for Greece, and that it contains a “voluntary” role for investors to, effectively, give the Greeks more time, and accept a haircut. But the S&P threat specifically rules out the ‘voluntary’ weasel as a way to avoid its wrath.

“I expect the euro group to agree to additional financing to be provided to Greece under strict conditionality,” said Luxembourg Prime Minister Juncker, “and this conditionality will include private-sector involvement on a voluntary basis.”

Meanwhile, the Portuguese go to the polls for the second time in two years today, after opposition parties rejected the outgoing Socialist government’s austerity policies. The election polls suggest that the center-right Social Democratic Party will get around 36% of the vote, and the ousted centre-left Socialists just over 30%. That wouldn’t be enough for an overall majority, so a minor-Party agreement-cum-Coalition will be necessary. Observers in Portugal think it likely that fluid opposition alliances will be formed to defeat key parts of the SDP’s plans – which accept totally the harsh terms being demanded by Brussels.

A new buzz-phrase – the ‘political accident’ – is now being more commonly heard among the EU elite. Opposition games in Portugal, hardening attitudes among the German electorate, growing militancy in Greece, and strengthening feelings of kinship in Ireland….these are all termed ‘political accidents’.

“The market is still anticipating a significant probability that an accident could happen,” Commerzbank said in a research note last week.

What a wonderfully Freudian slip this term is: the People expressing their will is ‘an accident’. You really couldn’t invent the Eurocrat mindset.