Friday, July 22, 2011

with a Greece-y spoon

Wow. Version N minus k of the Greek bailout has arrived (where k is a positive integer). You can read the full text here.

I want to talk about the losers in this process.

The biggest loser is JC Trichet and the ECB. Man they really had to eat it. JC thundered "no default ever" to whoever would stick a microphone in front of him and threatened that in the event of a default, the ECB couldn't hold Greek debt. Well, now we (a) have a default and (b) the ECB will continue to hold, and add to its holdings of Greek debt. By acting like he was large and in charge when he was not, JCT has made himself look like a clown and damaged whatever positive reputation the ECB still had.

The next big loser is the sovereign CDS market. We have an obvious default, that according to my understanding (and that of the WSJ), will somehow NOT be creating a credit event. That is, holders of CDSs on Greek debt will NOT be getting payouts. In other words, the sovereign CDS market has been revealed to be a mug's game and may find it hard to survive. Governments may think they have won against the evil speculators, but all this victory will really do is drive up interest rates on sovereign debt (ceteris paribus, y'all).

The next loser is the German taxpayer, especially if the Eurolords actually follow through with their threat of a "Marshall plan for Greece".

Hey Angus! How about a word or two on the winners.

Well, Ireland and Portugal are big winners as they got the interest rates on their bailout loans cut dramatically without having to make any additional changes to policies. A good deal for them.

I also think holders of Greek debt are winners here, as they can lock in a decent return on their holdings for a not too bad haircut. I would take one of the deals.

Any other losers?

Finally and amazingly, Greece itself is again a loser in its own bailout. Some things never change I guess. They still have a mountain of debt, they still face prolonged austerity and God help them if the Eurolords follow through with their politically correct, bureaucratically bungled, economically useless version of a Marshall plan for that beleaguered island.


Kunal said...

Um, Greece is an island?

Simon Spero said...

Greece is actually part of an Archipelago off the coast of England.

Also, this obviously isn't a default, as otherwise it would have been a triggering Credit event, which it didn't, so it wasn't. QE.D.

Gerardo said...

The Greeks need to go back to first principles... What would Zeus do?

Anonymous said...

Zeus would do the usual -- find a pretty girl to make more demi-gods with... :-D

Max said...

Yeah,Angus, I am pretty much pissed at my (not by me) elected government who doles out my hard earned money like it was their property.

On the other hand, this government won't survive the next election and will be replaced by (and now I kid you not) a government EVEN MORE TO THE LEFT AND EVEN PRONER TO A BAILOUT ^^

I fear there are some intersting times ahead of us here in Europe. Time to settle in Switzerland...