… the sixth time in 18 months European leaders
have announced a definitive solution to the Euro crisis.
Should this version of the final bailout be taken any more seriously
than the first and second solutions to the Greek crisis in May and September 2010
or the Irish bailout of December 2010 or the Portuguese rescue package of March 2011
or the breakthrough vote in the Greek parliament of last month?
The supposedly good news for markets
was that the -21% haircuts to be imposed on Greek creditors
...were less than half those suggested a few days ago.”
"A 21% haircut is a bad joke.
If you assume that Greece can afford to spend
10% of their revenues just to pay the interest,
which is what they will need to be able to do to get out of their crisis,
then the haircuts look more like 75-80%.
Sean Egan, the most credible credit analyst in the country,
estimated this week that the eventual haircuts on the Greek debt will be 90%."
...Here is what it really says:
We are going to keep throwing good money after bad
and work as hard as we can to transfer the debt that is on the banks to the ECB
and European taxpayers as long as the voters will let us.
This first tranche will be another €109 billion.
That will last a few years,
and Greece will only have to pay about 3.5% on that debt and the rollover debt,
and people who expected to be repaid in that period
will see payment extended to either 15 or 30 years.
You can call this what you like, and they call it “selective default,”
but it is a default.
There will be government guarantees on the debt,
so the ECB can take it from the banks."
...First, notice that the plan claims haircuts will only be 21%.
But that assumes you can sell the new bonds at a 9% interest rate.
If the interests rate demanded by the market are 15%, which is closer to reality,
the haircuts are closer to 67%, after what appears to be an initial 20% cut.
Will any institution not immediately
try and get those bonds into the hands of the ECB?
This is just ugly.
John Mauldin
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