“Greek default inevitable” says top credit source
The Slog has learned this morning, from a source directly involved, that the Greek debt situation “would almost certainly” have become critical this week – but that with or without Merkozy pressure, “the race between debt and austerity is lost and gone”.
Only a senior EU/IMF intervention to set in motion radical debt forgiveness and some return of monies to the sovereign creditors of Greece can now avoid imminent Greek collapse, The Slog was advised earlier today. The person not surprisingly declines to be named, but stated clearly that both involved lenders and the EU’s Troika are well aware of the real situation on the ground in Greece.
The leak came immediately before Greek Prime Minister Lucas Papademos assured the media this morning GMT that he expects to have the scope-out of a 100 billion-euro plan next week. Troika talks will proceed at that point, he claimed. But at least one significant lender is far from convinced.
“The media are talking about 50% haircuts,” the source asserted, “Even if we delivered that, our intelligence is that the economy is in freefall, and way beyond repair. Short of something from the Central Bank [ECB] later this week, my group sees no way default can be avoided now.”
There were reports yesterday of huge pressure being applied by Merkozy to the creditor bondholders concerned.
“The pressure they apply is to keep us at the poker table,” the informant told me, “but nobody in his right mind is going to accept what is effectively a total profit write-off, followed by the Troika giving them more money. Whatever Papademos says, the Troika itself will only do that under extreme pressure from the top. I have advised my reporting line that there is no more to be gotten out of this except pointless pain.”
I have to step back and judge the provenance of this leak. The timing, for one thing, is extremely significant. There is a main ECB Council meeting this Thursday, and today Angela Merkel is meeting with IMF boss Christine Lagarde to discuss the situation. It is perfectly possible that my source’s bosses and other lenders are out to call the EU/IMF/US bluff: “Sort this out now, or you’ll have a disaster on your hands”.
But this isn’t certain. For one thing, I had to chase up the source: he didn’t come to me. For another, his institution would almost certainly survive a Greek default – whereas at least one French bank (I am now 90+% certain) wouldn’t. I’m also informed that a German major will struggle with an untidy default at the moment. Finally, we shouldn’t forget that Papademos himself wants the ECB role to be far more proactive and widespread than it was under Jean-Claude Trichet.
I spoke with two financial journalists and a major adviser yesterday, all of whom discerned a poker game in which the bluff was being called, and two of whom said the deterioration in the Greek economy was terrifyingly steep.
This could be push-comes-to-shove time in the stand-off between the ECB’s Mario Draghi and Germany’s Chancellor Merkel. If so, it would make some sense of renewed rumours circulating in relation to a planned German exit from the euro. I haven’t heard anything credible on that as yet – although I am aware that an influential group of Bankfurt heavy-hitters think the cost of saving the euro is now far too high.
Stay tuned.
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The Slog 