Portugal & Greece downgraded on risk of debt default

[Richard Hakluyt]

Those translations are spot-on 

More on the subject :

http://www.bbc.co.uk/news/world-europe-13545386

[jimmy olsen]

Those translations are spot-on 

More on the subject :

http://www.bbc.co.uk/news/world-europe-13545386

Far too reasonable an analysis for this forum. There must be judgments made and nationalities denigrated!

[The Minsky Moment]

Martin Wolf's editorial: http://www.ft.com/intl/cms/s/0/1a61825a-8bb7-11e0-a725-00144feab49a.html#axzz1O46vqzef

This solves a mystery for me in terms of how the Eurozone could be operating.

To the extent the dynamics of the Eurozone is akin to that of the gold standard, then it must not only be the case that chronic deficit countries must face deflation (if the rules of the game are kept) but also that chronic surplus countries must accept inflation.   Such is the mechanism that brings relative competitive position back into balance.  But the highest profile chronic surplus country - Germany - has done its best to rig the system to squeeze out inflationary impact.  Still that leaves open the question - where do all the excess Euros flowing into Germany go?

Wolf, via John Whittaker of EuroIntelligence, provides the answer.  The Bundesbank has quietly accumulated over 300 billion euro in claims on other national central banks.  That is, the flow of euros into Germany - rather than inflating the economy -- has been redeployed to shore up the battered German banking system while the Bundesbank has absorbed the flow in the form of acquiring massive claims on the central banks of Ireland, greece, and Portugal.  This of course in addition to whatever pro rata exposure the Bundesbank effectively holds of the ECB's own inventory of claims on the debtor countries.

The system is badly broken and there is more than enough blame to share.

[jamesww]

Martin Wolf's editorial: http://www.ft.com/intl/cms/s/0/1a61825a-8bb7-11e0-a725-00144feab49a.html#axzz1O46vqzef

This solves a mystery for me in terms of how the Eurozone could be operating.

To the extent the dynamics of the Eurozone is akin to that of the gold standard, then it must not only be the case that chronic deficit countries must face deflation (if the rules of the game are kept) but also that chronic surplus countries must accept inflation.   Such is the mechanism that brings relative competitive position back into balance.  But the highest profile chronic surplus country - Germany - has done its best to rig the system to squeeze out inflationary impact.  Still that leaves open the question - where do all the excess Euros flowing into Germany go?

Wolf, via John Whittaker of EuroIntelligence, provides the answer.  The Bundesbank has quietly accumulated over 300 billion euro in claims on other national central banks.  That is, the flow of euros into Germany - rather than inflating the economy -- has been redeployed to shore up the battered German banking system while the Bundesbank has absorbed the flow in the form of acquiring massive claims on the central banks of Ireland, greece, and Portugal.  This of course in addition to whatever pro rata exposure the Bundesbank effectively holds of the ECB's own inventory of claims on the debtor countries.

The system is badly broken and there is more than enough blame to share.

So JR, when do you think I'll become evident that it's not working and what are the consequences ?

[The Minsky Moment]

It's been evident from last year.
the two most likely outcomes - expulsion of Greece and possible others from the Euro or large-scale transfers - are fixes that don't address the underlying problem.

[citizen k]

Relief in sight?

EU agrees in principle on new Greek bailout: source
By Lefteris Papadimas and Sakari Suoninen

ATHENS/AACHEN, Germany (Reuters) – Senior euro zone officials have agreed in principle on a new international bailout of Greece that will give it more time to try to resolve its debt crisis, a source close to the talks said on Thursday.

The Economic and Financial Committee of deputy ministers and senior officials of the 17-nation currency zone approved the plan in principle in talks in Vienna that ended in the early hours of the morning, the source said.

The second bailout of Greece, which will effectively replace a 110 billion euro ($160 billion) scheme launched in May last year, will run until mid-2014, giving Athens an additional year of financial support beyond the original plan, the source said.

The euro rose moderately to a fresh one-month high above $1.45 and U.S. stock prices came off lows in response to the news, which seemed to remove the risk of Greece defaulting on its 330 billion euro sovereign debt this year.

Major areas of uncertainty over the new plan remain. The exact size of the bailout, and how much each international donor will contribute, remain to be worked out in time for a June 20 meeting of euro zone finance ministers, the source said.

The new scheme will involve some participation of private sector investors but this will be limited to avoid triggering a "credit event," the source added. That is an event which would inflict losses on holders of Greek bonds and lead to downgrades of Greece's credit rating or the triggering of insurance contracts on its debt.

Officials from the European Union, the European Central Bank and the International Monetary Fund, which put together the first bailout, have been working with the Greek government for weeks on a new plan for spending cuts, revenue increases and privatizations by Athens after it missed fiscal targets under the original scheme.

The source said the new bailout would cover Greece's funding needs on the assumption that it could not resume borrowing from capital markets in 2011 or 2012. The original bailout envisaged Athens raising 27 billion euros from the markets next year and 38 billion euros in 2012.

The source said the new program would involve detailed commitments by Greece on the management of a new national wealth agency and on the timing of specific privatizations, but would stop short of intrusive international supervision of the agency.

ROLLOVER

Details of how private investors will participate in the new plan are still being worked out, the source said, declining to comment further.

ECB officials have strongly opposed any restructuring of Greek debt through changing the terms of bonds, on the grounds this could destabilize financial markets by fuelling speculation about restructurings in Ireland and Portugal, which are also receiving bailouts.

So in recent days, EU officials have focused on the possibility of organizing a voluntary rollover of debt, in which private investors would agree to maintain their exposure through fresh purchases of Greek bonds as existing ones matured.

Senior ECB policymakers indicated this week that they might accept a rollover, though it remains unclear what incentives might have to be offered to private investors to persuade them to take part.

Athens intends to present a fresh austerity plan on Friday, a senior Greek government official told Reuters. The new budget plan would include faster privatizations and 6.4 billion euros of new savings including some tax rises.

Prime Minister George Papandreou was due to deliver the details to Luxembourg's Jean-Claude Juncker, who chairs the group of euro zone finance ministers, on Friday.

"My personal feeling is Greece will have a new program submitted under strong conditionality. I will have a meeting in Luxembourg tomorrow with the Greek prime minister," Juncker told reporters. "I would like us to come to a final conclusion as far as Greece is concerned before the end of this month."

Pressure on all parties to agree on a new rescue of Greece rose further on Wednesday when ratings agency Moody's downgraded Greece by three notches deep into junk territory, citing a 50/50 risk that Athens would have to restructure its debt and impose losses on private investors.

As a condition for further help, the EU has been urging Greek political parties to reach a consensus on austerity measures, and there was still no clear sign of this on Thursday.

There is even unrest within Papandreou's ruling party; a group of Socialist party members of parliament demanded on Thursday a full debate on austerity steps and privatizations.

Another source of uncertainty over the new bailout is the stance of the IMF, which made no immediate comment on news of the euro zone's agreement in principle. IMF officials warned over the past week that the global lender would not pay its part of the latest aid tranche for Greece under the old bailout unless Greece's 2012 funding gap was addressed; this forced euro zone governments to come up with a broader financing plan.

As the Moody's statement underlined, even a second rescue would be unlikely to remove fears that Athens will eventually be forced into a coercive restructuring of its debt, which stood close to 150 percent of gross domestic product at the end of last year and was still rising.

A key fear for investors is that a Greek restructuring would spill over to other debtors in the euro zone, with Spain's much larger economy the potential tipping point for the bloc.

But Spain saw strong demand at an auction of 3.95 billion euros of medium-term bonds on Thursday, suggesting investors still view it as fundamentally stronger than the countries receiving bailouts.

[MadImmortalMan]

More time to dig a deeper hole, most likely. Germany shouldn't give them jack shit else until they have a balanced budget (in the black, not just inside ECC guidelines) and a complete outside audit verifying the numbers.

[Admiral Yi]

I found fascinating the suggestions of EU supervision of privatization and possibly even their tax collection.  Shades of the Khedive.