Brussels….all smiles.

S&P, Fitch, Moody’s weigh default ramifications

Hardliners briefing hard to the end on ‘hopelessness’ of leaked Troika report

Connivance, confusion and chaos reigned supreme in Brussels as the 10 pm press conference was cancelled, but at 3am a deal was announced. The Slog remains fairly certain that the key ratings agencies will see the deal in its current form as a default, triggering massive insurance payments. The major development priot to the deal was a ‘further’ leaking of the Troika Report -with heavy use of this in the discussions by hardliners.

The Slog’s New York informant said there would be no deal Monday, and there wasn’t. What we had up to 3 am was ‘movement’…if you think of overnight stubble-growth as movement.

For one thing, the bar closed at 11.00 pm. That was a bad sign – a bit like the covers being dragged on at 11.01 am at Lords.

For another, Schauble wanted the 2020 Greek debt-to-GDP ratio to be 120%, the Troika report said it would be at least 129%, but the Ministers had haggled it down to 124%. Ring loud the bells and raise high the roofbeam.

Earlier in the day, Northern European hardliners including Holland, Germany, Austria and Finland, demanded a “permanent representation” of the troika in Athens, so it could run Greek finances. This too was movement, but very probably one involving fourth reverse gear.

The decision by the hardliners to leak further damning details of the Troika Greek debt viability report produced the mildly amusing spectacle of the London FT leading with the story Tuesday morning, although Reuters had the story last Saturday afternoon EST, Bruno Westerfield broke details in the Telegraph last Saturday night GMT along with his German default plans scoop, and The Slog ran with both that and the New York informant’s confirmation of an international default timetable during Sunday.

But several ezone finance ministers now describe themselves as ‘shocked’ by the revelations of Greece’s hopeless economic/fiscal outlook. Bollocks.

However, two other vital elements are being neglected by the gathered bigwigs. First, as my New York mole pointed out yesterday, the private bondholders are feeling just a tad neglected. Dalloran is alleged to have said this evening “53% and that’s it on the haircut”, and the Greek delegation has had to stop the session three times to talk further with IIF representatives. These are pretty big ‘minor points’ to be still undecided….and we still await details.

But my main focus remains the credit agencies’ attitude to the structure of the proposed bailout/restructure deal – and I’m not the only one: Zero Hedge has been boffing on about this all day, Tyler Durden there being on a similar wavelength to me – although he thinks the ‘default done deal timetable’ story is tosh. We shall see Tyler, we shall see.

Bloomberg had this late Sunday:

‘Compounding the issue is the role of the ECB and the Greek bonds it has accumulated over the course of the crisis. The Frankfurt-based central bank is holding talks on exempting Greek bonds in national central banks’ investment portfolios from a debt restructuring, two euro-area officials said last week.’

Reuters said this last week:

‘The ECB is swapping its Greek bonds for new ones to ensure that it won’t be forced to take losses in any debt restructuring, three euro-area officials said on Feb. 16. The move may be completed today, the officials said.’

In turn, websites and print business media have been overflowing with sovereign credit dealers saying the ECB action subordinates the private bondholders. And the greater the Troika demands for IIF haircuts get, the more that too will create a non-several deal which is in turn another technical default.

All this supports gossip I had early yesterday evening suggesting that the Hedgies were quietly rolling over to every Troika demand – in the certainty that their credit insurance will pay out. But that’s all a tad esoteric if the S&P/Moody’s/Fitch axis pitch up and yell default with a capital D.

I spent much of yesterday afternoon trying to get a straight answer from the UK offices of The Big Three. The situation seems fairly straightforward: Mario Draghi’s ECB debt swap deal was so brazen and unexpected last week, the ratings chaps are in a state of catatonic shock. The agencies swamped me with scoped scenarios and critical path analyses, up to but not including balls-out subordination of the private bondholders by the Central Bank. Looks like nobody factored that one in. This gets more amazing the more it unfolds; but it does confirm Signor Draghi as a bloke with no problems in the cojones department. I really get the impression that the ECB boss is more or less saying “Sabotage us if you dare”.

So I was back to the States again by mid-evening. And while all I have is insiders who know insiders, the general consensus of the feedback is that S&P and Fitch are at best lukewarm about the deal’s ability to avoid the default tag. Moody’s is as tight-lipped as a ever. It’s not much, but even so: who’s keeping an eye on this one in Brussels? Mr Durden the bareknuckle guy over at Zero Hedge says the ECB action is a flagrant breach of the Rule of Law that will make all future bailout negotiations a nightmare. If I was the ECB, Berlin and Brussels, I wouldn’t have any PSI next time – but there you go, I’m not – so who knows?

But then just on 3 am, cor blimey, there’s a deal at 121% debt/gdp ratio by 2020. So to get that ratio down to 121% from 124%, as Reuters reports, someone has taken a larger loss. Is it the private creditors? Is the deal voluntary? And does that make the previous ECB swap even more subordinating?

Before going to bed now, I thought I’d offer some closing remarks about the situation we have at the moment. It’s flakey beyond belief, Machiavellian beyond anything Niccolo might have envisaged, optimistic to the point of ridicule, and 100% irrelevant: Greece is dead – Washington knows it, the markets know it, Berlin knows it, Frankfurt knows it, even Wolfgang Munchau now knows it. Even at this stage, I remain convinced the package will be destroyed by something zooming into frame before March 20th. Could be Wolfgang Schauble riding a scud missile, Mickey Mouse, Marble Arch or even Charles de Gaulle. But my money is on the ECB subordination being a deal-breaker for the credit agencies.

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