Greek Aid Needs Almost Double Overnight to €80 Billion - Does Anybody Have Reliable Figures At All?

Tuesday, April 20, 2010

So, haha, you want to know, haha, what dimensions the Eurozone debt disaster actually has? Well, how about trying some free random number generator? Just set its range from a few hundred billion to a few trillion, give it a spin and believe the number as much as any of the official lies disguised as press releases by Eurozone governments and monetary institutions.
This method will yield the same error of margin than "official" figures which can now double overnight. It was the Wall Street Journal that scooped the shocker of the day:
Greece may require financial assistance of as much as €80 billion ($107.92 billion) to escape its debt crisis and avoid default, Bundesbank President Axel Weber told a group of German lawmakers Monday, according to a person familiar with the matter.
The estimate, considerably more than the €45 billion that European countries and the International Monetary Fund are currently prepared to extend Greece this year if it needs a bailout, suggests that a rescue of the country may come in several stages and reach beyond 2010.  
Mr. Weber, a member of the European Central Bank's governing council and a leading candidate to succeed Jean-Claude Trichet as ECB president next year, told the legislators that Greece's situation was worsening and that "the numbers are changing all the time," according to the person. A Bundesbank spokesman declined to comment.
If you now think this will cover Greece's stabilization, haha, you are dead wrong. Give the random number generator another spin and you will arrive at the exact figure this blogger has stated last summer and that is now also used by the German Bundesbank.
According to a Reuters report,
German newspaper Bild said Weber warned that the total amount of aid Greece requires may not be known until later, drawing a parallel with the case of nationalised German property lender Hypo Real Estate in 2008.
I would not carve Weber's figure of €80 billion in stone,
remembering another Reuters story from last Friday, citing internal ECB documents:
The situation for Greek banks remains difficult and could deteriorate further, according to a European Central Bank document seen by Reuters. 
The Greek banking system is availing itself of the liquidity provided by the ECB and national central banks while the recent changes to rules on accepting assets as security in exchange for loans removed the risk banks would no longer be able to use government bonds as collateral, says the document, taken by ECB President Jean-Claude Trichet into a meeting of euro zone finance ministers on Friday in Madrid.
The ECB will keep accepting BBB-rated debt next year in a boon for Greece, and will exempt government bonds from new risk penalties on lower-rated assets.
"Still the liquidity situation of Greek banks remains difficult and could deteriorate," the document says.
The document also says market worries remain after an aid package announced last week to help Greece."
Despite the commitments expressed in the statements by the euro area heads of state and governments on 25 March and Eurogroup on 11 April and the determination signalled by the Greek government to implement the announced adjustment measures for 2010, financial market tensions are persisting."
It appears Mr. Market is still the best indicator of what is to come as nobody else appears to have reliable data: Greek yield spreads reached new record highs north of 470 basis points above benchmark Germany this week with no signs of abatement.
Greek CDS were last traded above 450 basis points, meaning it costs $450,000 to insure $10 million government debt against default. In January such an insurance cost only $250,000, the chart to the left shows.
As Weber also said there was no alternative to bailout Greece at this point of time it has to be questioned whether there is only political will or also some rationalist thinking behind such a move.
Focusing on fundamentals, I highly doubt Eurozone bailouts are judged by the numbers only. Although this may sound ironic as it was just proven that nobody seems to have an exact overview I get scared by the "don't worry be happy and get your bailout" attitude when taxpayers are suddenly confronted with double the figures the day before.
Remember Ireland (posted here):
In the case of Ireland first reports of a €18 billion hole were overtaken by € 32 billion and ended at €43 billion of new capital needed by banks as of Wednesday morning.
So think again before trusting any happiness-sopping releases telling you the crisis has been contained. We've heard this one since August 2007 by now, and not a single structural issue has improved since.
I am holding on to my opinion that Eurozone members will out-compete each other on yields later this year as not a single structural issue has yet been tackled in the Eurozone.
  • Hedge fund oversight: result zero
  • Cross-border banking oversight: result zero
  • Derivatives oversight: result zero
  • Sovereign deficits: rising and no end in sight.
DISCLOSURE: A speculative short EURUSD position based on the current market perception that Europe's problems are currently bigger than those of the US. Long gold/silver bullion as both will see further economic deterioration that's not yet showing up in data I consider dubious at best anyway.

1 comment

LL said...

People throw numbers around: I say 300bn. Why not? Look, this whole issue is blown out of proportion, Greece needs to finance 28bn for 2010, 50bn till the end of 2011 (hence the 80bn) and another whatever 40 in 2012. BUT this does NOT mean all will be bailed, this is the finacing needed. The Greek budget has 40bn revenues and 57bn expenses and the market challenges this wisdom, asking for reforms. As they happen Greece should become self financed. BAML says today that this it is their probable scenario.

The problem with the Greek authorities is they dont have ANY CLUE as to the emotional reactions of the markets. They think they speak to a lecture in OECD or some sociology convention. They dont play the markets like seasoned politicians do.

21 April, 2010 16:38

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