Euro zone eyes buyback, not bank tax, for Greece

[muriel_volestrangler]

Source: Reuters

Germany and France are willing to allow Greece to slip into a temporary default as part of a bond buyback plan aimed at preventing Europe's debt crisis from spreading, and have ruled out a levy on banks.
...
Dutch Finance Minister Jan Kees de Jager said a short-term or selective default for Greece, previously opposed by the ECB, was now a possibility.

"The demand to prevent a selective default has been removed," he told the Dutch parliament.

Euro zone sources said a buyback of discounted Greek bonds to help reduce Athens' crippling debt pile was now seen as the most promising way of making private investors contribute to the cost of another financial rescue.

Read more: http://uk.reuters.com/article/2011/07/21/uk-eurozone-idUKTRE76J7V120110721

---

The picture is still unclear; the Telegraph says

'Jean-Claude Juncker, head of the Eurogroup of finance ministers, told reporters that no possibility could be excluded and "everything shoudl be done to prevent a default".'

while The Guardian says:

'Looking at the City again, shares are now in broad retreat. The FTSE 100 index is down 55 points at 5798, and the euro has lost all its recent gains and is now back at $1.4155 (so lower than it was trading before the "Merkel and Sarkozy agree deal" headlines flashed up last night).

The trigger appears to be comments from Jean-Claude Juncker, president of the Eurogroup, which appear to rule out a new bank tax and suggest that a Greek "selective default" is close.

Dutch finance minister Jan Kees has also told the Dutch parliament that Germany and France have agreed a way in which Greece could selectively default on some of its debts. Again, no firm details emerged.

Joshua Raymond of City Index said the talk of "selective default" has spooked traders.

The market's reaction towards today's summit is likely to be dictated by any confirmation of a bank tax, the scale of involvement of the private sector, any consideration towards a selective default and the amount of details that remain left to be discussed after the meeting. Should the market not get a clear and transparent picture of what the next steps are for Greece and the second bailout, investors are likely to be left rather unimpressed and running out of patience.'

Both the Telegraph and Guardian are live-blogging this.

I think this looks like a fudge designed to bail out the major banks as much as possible while avoiding 'official' default (ie the kind of default that triggers further actions like the payout on credit default swaps). Which looks like Euro-zone taxpayers shouldering most of the cost. There's a lot more explanation of the possible scenarios in the Reuters article.

[xchrom]

1. Recommend

[dipsydoodle]

2. Eurozone leaders begin crunch debt talks

Eurozone leaders have begun delicate negotiations to agree further help for Greece and prevent other economies from being dragged into the debt crisis.

German Chancellor Angela Merkel and French President Nicolas Sarkozy have agreed a common stance, but details of the deal have not yet been released.

Whether they can convince the rest of the eurozone remains unclear.

http://www.bbc.co.uk/news/business-14229717

[dipsydoodle]

8. delete

posted in wrong place.

[dixiegrrrrl]

3. key part is:"making private investors contribute to the cost of another financial rescue."

polite way of saying bond investors are going to get screwed so the banks can be safe from losing any money.
Portugal and Ireland are next, btw.

[muriel_volestrangler]

5. I think 'private investors' includes the banks

as opposed to governments, the ECB or the IMF, which are public.

What worries me is that, to try to get round the definition of 'default', the banks and private investors may not be forced to contribute - just 'urged':

The deal paves the way for a German-backed initiative for more direct measures to get private holders of Greek bonds to help pay for the bail-out. According to a version of the plan circulated by the European Commission on Wednesday evening, all owners of Greek bonds that come due in the next eight years will be urged to swap their holdings for new bonds that do not mature for another 30 years. Other plans, however, including a French-backed bond rollover plan, are believed to still be on the table.

http://www.ft.com/cms/s/0/36e18942-b372-11e0-b56c-00144feabdc0.html

And I don't trust bankers to do something 'for the good of the euro', if it costs them money.

[Fool Count]

4. Sell your Greek, Portuguese, Irish, Spanish and Italian bonds now.

Thank me later.

[JackRiddler]

6. I'll check to see if these are among my vast holdings...

Thanks for the wise advice there, it's completely contrary to what ANYONE else is saying!

Why do you think anyone might be buying these bonds, by the way? Why have they been buying Greek bonds the last year, since the first "bailout"?

[Fool Count]

11. The reasons anyone is buying those bonds are simple

(i) they pay a good interest, unlike US treasuries or Bunds and (ii) they are still considered to be guaranteed from failure by EU's
willingness to bail out the members who issued them. Basically, they are perceived to be guaranteed by Germany's and France's
strong financial position and determination to defend the common currency. That perception is mistaken and won't last much
longer as the magnitude of the crisis becomes apparent. It is now very likely beyond the capacity of Germany and France to
absorb and certainly beyond the capacity of PIIGS to pay up, even with the harshest austerity measures. That's why now is the
time to get rid of them, since it is now official that keeping investors whole is not a priority anymore. Euro is about to get cheap
too - another good reason to dump any Euro-denominated assets.

[JackRiddler]

12. The buyers are large EU institutions looking to get a cut of national assets at cutthroat discounts.

They're intending to own the Greek (and Spanish, and etc.) public companies, coastlines, islands, ancient sites - for nothing.

And it's been obvious for more than a year that Greece will default eventually. This is odious debt.

[GliderGuider]

7. Scurrying to avoid the inevitable.

If we step back and take a look at the Greek crisis in a broader context, it becomes clear that most of the current financial maneuvering is just the scuffle of deck-chairs.

By broader context I don't mean mean just in terms of the European or even the global economy, though even expanding our horizons that far reveals deep-rooted and very worrying structural problems. Instead, step back ten paces and look at the whole of the human experience on the planet and how it has evolved over the last 2000 years or so. From a relatively bucolic begionning, we have arrived at a destination fraught with limits on every side.

We have lost the oceans due to over-fishing, acidification, pollution and warming;

We have depleted the fertility and depth of agricultural soils through monocropping and erosion;

We have drawn down sources of ground-water world-wide;

We are continuing to put over 30 billion tonnes of CO2 into the atmosphere every year: over 100x the CO2 emitted by volcanoes;

We have warmed the planet to the point where weather changes are disrupting rainfall patterns, interfering with harvests in regions around the world;

We passed Peak Oil in 2006 - oil prices are going to be rising from here on, unless a global depression reduces energy demand;

We are drawing down the quality of all sorts of resources, from metal ore concentrations to the quality of coal and oil being recovered, to the quality of fish catches. As the quality declines the quantity can decline and the energty required per unit of recovered resource increases;

We have introduced enormous social complexities to deal with emerging global problems such as international terrorism, trade and finance. In many cases the cost of the additional complexity exceeds the value of the solution;

Rising energy costs, weather instability and soil and water problems are combining to create regional food supply problems, that are reflected in rising food costs world-wide.

We continue to add enough people to the planet to create a new Egypt every year.

Our civilization seems to be nearing a breaking point.

In the context of this picture, whether Greece is forced into a partial or full default at this time is of very little consequence. Five years from now a number of European countries are likely to be in full default, the number of climate refugees will be rising, famines will be spreading out in various places around the world, and the toll of physical and human damage from extreme weather events will be rising even higher.

Greece is just a symptom. Fixing the symptom does not address the underlying problem.

[dipsydoodle]

9. Global shares jump on reports of eurozone debt deal

Global stock markets have risen on reports that eurozone leaders have reached a provisional agreement on tackling the Greek debt crisis.

The leaked draft includes the possibility of a debt restructuring and expanding the European bail-out fund.

"Greece is in a uniquely grave situation in the euro area," the statement said.

US shares gained 1.3%, while shares in Milan rose by 4%, and Spanish shares also jumped.

http://www.bbc.co.uk/news/business-14239794

[Ghost Dog]

10. Eurozone debt crisis summit: live (Telegraph blog)

20.10 Euro spikes nearly a quarter of a cent against the dollar as Sarkozy confirms that the European fund will extend maturies of loans and cut interest rates to between 3.5pc and 4pc.

20.00 Sarkozy says that they have decided to take strong measures to reinforce the sustainability of Greek debt. After a brief statement, semantics immediately come into play. After the first question from the audience, he insists that the plans do not represent a partial default:

Quote You used that language of a partial default, not me. He tells the reporter. I am not running a ratings agency.

He says the private sector will participate by voluntarily lowering interest rates and etending maturities on Greek debt.

19.55 BREAKING French President Nicolas Sarkozy is addressing the press now.

/... http://www.telegraph.co.uk/finance/financialcrisis/8651486/Eurozone-debt-crisis-summit-live.html

(Times are GMT+2 == ET+6) I'm still looking for more up-to-date detail than eg. this:

http://uk.reuters.com/article/2011/07/21/uk-eurozone-idUKTRE76J7V120110721

from the likes of Reuters.