ECB Ostrich Maneuver; Euro-Zone Comedy Show: Junker Proposed "Re-Profiling" Greek Debt, Now He Wants "Soft Restructuring"; Targeting Short-Selling

No matter how you label it, Greece is going to default. Nonetheless, like an ostrich with its head in a hole, the ECB remains in firm denial of the obvious.

The situation is made all the more humorous because Jean-Claude Junker, the head of the euro-zone finance ministers, keeps looking for words other than default or restructuring to describe the default that is clearly coming.

A couple days ago Junker proposed "re-profiling". When that went over like a lead balloon, he trotted out the phrase "soft Restructuring".

Comedy Show Continues

MarketWatch reports ECB holds line against Greece restructuring

Call it by any name, but restructuring Greece’s sovereign debt remains a bridge too far for European Central Bank officials, who made a concerted effort Wednesday to undermine speculation such a move could be part of a solution for the euro-zone debt crisis.

Jean-Claude Juncker, the Luxembourg prime minister who also chairs meetings of euro-zone finance ministers, had said on Tuesday that a “soft” restructuring may be an option if Athens undertakes added measures. This came a day after he said a “re-profiling” of Greek debt could be an option.

On both occasions, he ruled out a large-scale restructuring of the nation’s sovereign obligations.

But the idea of restructuring has never flown at the European Central Bank, concerned that such a move would raise worries about banks in Greece and elsewhere in the euro zone that are loaded up on Greek and other peripheral debt.

Lorenzo Bini Smaghi, a member of the central bank’s executive board, warned in a speech in Milan that restructuring by any nation would put all of Europe in jeopardy by potentially wrecking the banking sector.

“Time has been lost talking about how to come up with a way to reduce the debt, but if we accept this we’ll jeopardize all of Europe,” he said, according to Bloomberg. “A solution for reducing debt but not paying for it will not work.”

Juergen Stark, also a member of the executive board, warned that restructuring would be a “catastrophe” and insisted at a conference in a resort south of Athens that any attempt to restructure the nation's debt would be a “catastrophe,” Dow Jones Newswires reported.

“It is an illusion to think that a debt restructuring, a haircut, or whatever kind of rescheduling you have in mind would help to resolve the problems this country is facing,” Stark said. “There is no other way than to continue with fiscal consolidation, and I would even say to double the effort in fiscal consolidation.”

Illusions Indeed

The illusion is insisting what cannot possibly be paid back will be paid back.

Inquiring minds may be wondering why the ECB remains in denial of the obvious. Here is the answer.

Haircuts would "Wreck the Banking Sector"

Today is actually the first day we see a ranking ECB official state the real problem. Did you catch it?

Lorenzo Bini Smaghi, a member of the central bank’s executive board, said restructuring by any nation would put all of Europe in jeopardy by "potentially wrecking the banking sector".

Who's Being Bailed Out?

It is important to recognize that no countries are being bailed out. Greece is not being bailed out, nor is Ireland, nor is Portugal.

Rather, the emergency loans serve to bail out the banks on the backs of Greek taxpayers, on the backs of Irish taxpayers, on the backs of Portuguese taxpayers.

All the countries have to sign off on these bailout maneuvers. Finland came close to trashing the arrangement but conditionally hopped on the Portugal bailout train.

However, public sentiment against more bailouts is building in Germany, Finland, Ireland, and other countries.

Can-Kicking Exercise is Over

What the ECB ostriches don't recognizing is the can-kicking exercise has gone as far as it is going to go.

Ilargi mocked Jean-Claude Junker in an Automatic Earth article yesterday simply titled Reprofiling.

Ok, kids, look at the blackboard now, we’re going to learn a new word today.

The word is "reprofiling". Reprofiling is a term invented over the past few days by one or more negotiators at the table discussing how to hide the fact that Greece is disappearing into the Aegean Sea slowly but surely, a while longer.

In normal days and circumstances, Greece would default on its debt. The parties holding that debt would reach a hard-fought agreement to take losses on various percentages of their claims, and the next morning, the sun would rise again, as it always has, over all 100,000 (crude estimate) or so Greek islands.

Not this time. This time, Greece is part of the EU and the Eurozone, and, more importantly, the country owes its debts to financial institutions all across the globe that can't afford the losses any hard-fought agreements would force upon them. Whether it's Wall Street banks, or the German Landesbanken, or French giants Paribas and Crédit Agricole, they're all tilting so close to the edge that any such loss recognitions might do them in.

German banks alone have €28 billion in Greek debt on their books. That does not include any swaps! A haircut such as that which would probably be required in a run-of-the-mill debt restructuring might be in the vicinity of 50% or more. Which would take €14 billion out of German banks' books. And many billions more out of other global banks. They would need to recapitalize, and some might not be able to do so.

But that’s not the worst part. Those same German banks carry €114.7 billion in Irish debt, and €146.8 billion in Spanish debt. That is still only the German banks. What British, French, Dutch and Spanish banks hide in their vaults at 100 cents on the dollar (or euro) is easily an order of magnitude more.

And that's how we get to our word of the day. Reprofiling.

Put the IMF on the Curb with the Rest of the Garbage

Ilargi goes on to blasts Dominique Strauss-Kahn, "DSK", the IMF chief who faces rape charges in New York.

We need to ask ourselves why we allow these folks the control of what remains of our wealth, and the very control of our lives. Whether DSK is found guilty or not, the very idea that a guy who stays in a $3000 a night hotel suite can run for president of France for the Socialist Party kind of says it all, when it comes to being twice removed from the real world, doesn't it?

I see lots of people writing about how the IMF needs to change, or something, because it will have to play a major role in the financial problems of countries all over in the future, but I'm thinking it should just be absolved and abolished. The IMF has only ever served the needs of financial elites, like the World Bank has, and since the controlling interests behind both firmly control the politics of all relevant nations these days, why not put them by the side of the curb with all the other garbage?

I could not possibly agree more when it comes to the IMF. Indeed I said the same thing a few days ago in IMF Chief Pulled from Plane in New York on Rape Charges; Greece Says "Nothing Changed"; Talks Persist in Brussels; Time to Dissolve IMF

IMF Leadership Vacuum

Right now there is an IMF leadership vacuum. It would be best for the world if it stayed that way.

Countries that take loans from the IMF usually regret it.

Now would be a great time to take advantage of the situation and disband the IMF. Don't expect it to happen because IMF rescues are not aimed at rescuing countries, but rather rescuing big banks that made stupid loans to countries like Greece, Ireland, Portugal, Argentina, etc.

Blaming the Speculators

Stupid banks that made stupid loans are the problem. The correct solution is to make stupid banks who made stupid loans pay for their stupid mistakes.

But NO!

The EU blames short-sellers not the banks.

Please consider EU countries back plans to tackle short-selling

European Union countries presented plans to curb the short-selling of government debt and shares Tuesday, as the bloc edged closer to tighter controls on speculators many blame for compounding the credit crisis.

The regime will require investors to reveal big short-selling positions to regulators and empower an EU watchdog to ask for sensitive information and temporarily stop short-selling. EU countries will, however, be allowed veto such a ban.

If both parliament and EU member countries reach agreement, the law could be in place by the end of this year.

"We had major issues particularly with Greece where clearly there were significant (market) movements totally unidentified," France's Christine Lagarde told a meeting of European Union finance ministers in Brussels.

"We are trying with this piece of legislation to remedy that situation."

Expect the comedy show to continue. The ostriches at the ECB do not want to discuss "re-profiling" or "soft restructuring" or any proposal except one that rapes taxpayers for the primary benefit of German and French banks who made stupid loans for greedy reasons.

When Spain joins the list of countries needing a bailout, this whole ridiculous scheme is going to blow sky high. Note how much more difficult the ECB made matters. By extending still more loans to Greece and still more loans to Ireland, it dramatically increased the amount of money that will blow up in default.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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