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Reality cheque
Jun. 9th, 2011 01:29 pmAs internal dissent grows on "the Greek question", two things are becoming clear:
(1) that the European Central Bank (ECB) is gradually coming away from its "denial" stage, and that
(2) the main questions are now "how" and "when", not "if".
Major banks met in Germany yesterday and seemed to concede that they were looking at an extension of maturity dates "and additional money". The implication of this seems to be that the German banks actually want to lend more to Greece, presumably in the naive belief that Greece can become more like Germany.
The more I look at the Greek situation, the more I see parallels with "the five stages of death". And I think that we are now, at last, approaching "acceptance".
However, the banks haven't finished playing their games yet, and these games strike me as going a long way towards dispelling that small glimmer of sympathy which some people had for them as the pariahs of the current crisis. Michael Kemmer of the German Banking Association Bundesverband deutscher Banken said that "it is likely that there will be private sector participation, but as a last step".
What does this mean? It means that the banks (and insurers) want to offload as much Greek debt as possible at 100%, so that, when there IS private sector participation, it's the taxpayer rather than the bank that has to foot the bill. It was perhaps therefore unfortunate that German insurers published today the details of their Greek debt exposure -- it's now €2.79bn. A year ago it was €5.83bn. That's €3bn of sovereign debt that has been transferred to taxpayers, courtesy of the ECB. (Other numbers show similar remarkable falls -- although in some of these cases the buyer will not have been the ECB; Ireland down to €3.9bn from €7.1bn; Italian debt down to €20bn from €27.8bn; Portuguese debt down to €2.8bn from €4.5bn, and Spanish debt down to just €9.06bn from €20.9bn. As they say, follow the money.)
The ECB for a year appears to have believed that if it kept on saying that this was a liquidity crisis, and kept on providing "liquidity" to the market, there would be no default. It's now coming to realize that it has sold itself a pup. While all of the banks were on the surface were agreeing with the ECB, they were also unloading as much Greek sovereign debt as they could, to the ECB. Result, the ECB now has an exposure of some €60bn, and it is in that situation like a guy who has fallen for a Nigerian 419 scam. You wish you hadn't gotten into this mess, but perhaps if you pay just a few billion euro more, everything will come out ok.
So, when Herr Kemmer talks of "a last step", and says:
The ECB really should put a stop to this now. It should start offering an increasing level of haircut when buying the Greek debt. Start straightaway at 99%, and then move down in single percentage increments every week. Within a year it would be paying what Greek debt is actually worth on the open market. But before then the banks would reach a "tipping point" and say "enough!" If (as I wrote a few days ago) there are credit default swap deals in place with US banks, we could then see the next phase of the argument begin -- has Greece defaulted or not?
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(1) that the European Central Bank (ECB) is gradually coming away from its "denial" stage, and that
(2) the main questions are now "how" and "when", not "if".
Major banks met in Germany yesterday and seemed to concede that they were looking at an extension of maturity dates "and additional money". The implication of this seems to be that the German banks actually want to lend more to Greece, presumably in the naive belief that Greece can become more like Germany.
The more I look at the Greek situation, the more I see parallels with "the five stages of death". And I think that we are now, at last, approaching "acceptance".
However, the banks haven't finished playing their games yet, and these games strike me as going a long way towards dispelling that small glimmer of sympathy which some people had for them as the pariahs of the current crisis. Michael Kemmer of the German Banking Association Bundesverband deutscher Banken said that "it is likely that there will be private sector participation, but as a last step".
What does this mean? It means that the banks (and insurers) want to offload as much Greek debt as possible at 100%, so that, when there IS private sector participation, it's the taxpayer rather than the bank that has to foot the bill. It was perhaps therefore unfortunate that German insurers published today the details of their Greek debt exposure -- it's now €2.79bn. A year ago it was €5.83bn. That's €3bn of sovereign debt that has been transferred to taxpayers, courtesy of the ECB. (Other numbers show similar remarkable falls -- although in some of these cases the buyer will not have been the ECB; Ireland down to €3.9bn from €7.1bn; Italian debt down to €20bn from €27.8bn; Portuguese debt down to €2.8bn from €4.5bn, and Spanish debt down to just €9.06bn from €20.9bn. As they say, follow the money.)
The ECB for a year appears to have believed that if it kept on saying that this was a liquidity crisis, and kept on providing "liquidity" to the market, there would be no default. It's now coming to realize that it has sold itself a pup. While all of the banks were on the surface were agreeing with the ECB, they were also unloading as much Greek sovereign debt as they could, to the ECB. Result, the ECB now has an exposure of some €60bn, and it is in that situation like a guy who has fallen for a Nigerian 419 scam. You wish you hadn't gotten into this mess, but perhaps if you pay just a few billion euro more, everything will come out ok.
So, when Herr Kemmer talks of "a last step", and says:
"Other measures need to be exhausted before this happens. There is still some room for manoeuvre."all that he means is that he would like banks to have a little more time to offload their exposure, if that's alright.
The ECB really should put a stop to this now. It should start offering an increasing level of haircut when buying the Greek debt. Start straightaway at 99%, and then move down in single percentage increments every week. Within a year it would be paying what Greek debt is actually worth on the open market. But before then the banks would reach a "tipping point" and say "enough!" If (as I wrote a few days ago) there are credit default swap deals in place with US banks, we could then see the next phase of the argument begin -- has Greece defaulted or not?
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