Papademos…forked tongue in cheek
Source warns: “Without change of heart by Berlin, lenders hold all the cards”
Slog suspicions vindicated as Reuters backs view that bondholders spoiling for fight
Yesterday morning I suggested that Merkozy and Greek PM Lucas Papademos had one version of the Troika/bondholders/Greeks situation, whereas a usually trustworthy Slog source held the opposite view. The source is now shown to have been right, as Reuters expanded last night GMT:
‘Hedge funds are taking on the powerful International Monetary Fund over its plan to slash Greece’s towering debt burden as time runs out on the talks that could sway the future of Europe’s single currency. The funds have built up such a powerful positions in Greek bonds that they could derail Europe’s tactic of getting banks and other bondholders to share the burden of reducing the country’s debt on a voluntary basis….They either prefer letting the country go under, which would trigger the credit insurance they have bought, or hope to get paid out in full if enough others sign up. That puts them in direct conflict with the IMF, which wants to force Greece’s cost of financing down to an affordable level.’
But things are heading towards stand-off in alarming ways.
I am permitted to tell you that my source works with (not for) a eurobank bondholder – not a Hedge Fund. The Reuters piece stresses that the Hedgies have little motive for folding at the poker table, whereas my source was at pains to say that the whole operation was a fantasy and needed serious EU/ECB intervention. Either way, the result is the same: the debt forgiveness/next IMF tranche scheduling process is light years away from the done-deal impression given by the Franco-German installed banker Greek Prime Minister Papademos yesterday.
Returning to the source this morning, I have no doubt about the validity of his view. He added within the last two hours:
“The original IIF [Institute of International Finance] deal about 50% forgiveness is completely stuck in the mud, let alone this one for the wider bondholding community. But even that can’t bring Greece back. What we have here is a fight to the death between private debt-holders on the one hand, and sovereign debtors worried about their banking systems on the other. But I stick by my view completely: those who will survive this mess hold all the cards. The EU doesn’t – and [Mario] Draghi needs to somehow persuade Merkel that this is the case”.
Hedge Funds are, let’s face it, at the bottom of a pretty rancid barrel. They’ve been piling up Greek bond holdings since September/October time – snapping up the March 20th due-date bond for 40% of face value. They have been looking for a showdown on this one – and they have little motivation to back off.
Let me make this as clear as I can: as I have maintained all along with eurodebt, this situation will not be resolved by private haircuts on anything but a minimal scale. The money to save Greece – and thereby the French banks – is going to have to come from somewhere else.
Meanwhile, as also predicted widely, the better-balanced Eurobanks are hoarding the ECB’s record 489 billion-euro injection into the banking system, thwarting attempts by Mario Draghi to avert a credit crunch across the EU. They’re still happy to park this money at negative net interest at the ECB rather than lend to other banks or business – an obvious sign that things are in a very bad way indeed.
Today, Italian Prime Minister Mario Monti met Angela Merkel to make a plea for more help to overcome the debt crisis. He told the Italian media that without more active EU help, there will be spreading disturbances in ClubMed. He also clearly wants to ECB to cut rates tomorrow….as do many others.
Draghi and Merkel must act now – and act in concert – or it’s all over. I wonder what the chances are of that happening?
Related: Globalism on the cliff-edge
The Slog 