Friday, 10 June 2011

Greek political pressure builds up

Reuters reports the IMF and EU have demanded wider political consensus in Greece before they give the debt-ridden euro zone member more cash. But the main opposition groups have vowed to vote against the new measures, saying they are choking economic growth.

The markets don't like the signs of increasing political unrest although in my experience this usually happens, even in the UK, when the IMF becomes involved. I detect a harder tone in the IMF statements since DSK demised. The Eurozone needs Mme Lagarde in as IMF head pronto.

Greek and Spanish bond spreads to bunds are creeping out again a sure sign of market unease.

During a speech to Parliament in Berlin this morning the German finance minister Wolfgang Schaeuble referred to a possible second bailout of Greece and argued “we have to insist on the participation of the private sector”. This is anathema to the ECB which currently allows banks across the Eurozone to put up Greek government debt as collateral for finance.

If Greece defaults the ECB cannot, at least according to their rules,  accept Greek bonds as collateral in their refinancing operations but they have broken so many rules and Treaty agreements already what difference will one more breach make? Well it will undermine further confidence in the Euro and its central bank the ECB with Johnny Foreigner.

Her Schaeuble is talking about Greek bond holders taking a hair cut, ie agreeing to a  reduction in the value of their Greek bonds. Its not going to happen Herr S. It will be treated by the ratings agencies as a default with dire consequences on the markets for the other PIGS debt.

Its anathema to the ECB as they are the biggest holders of Greek bonds and stand to lose something like 20bn € under the German plan. Oh dear!

1 comment:

lucyzocalo said...

Make sure to check out Z√≥calo Public Square’s article “Greece, You’re Embarrassing Us: The Laments and Mopings of Baltimore's Greektown”