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Saturday, May 07, 2011 1:41 PM


EU Seeks Collateral for More Greek Aid; Trichet Reiterates Restructuring "Not on the Agenda", Market Reiterates "Trichet is a Pompous Fool"


Once again ECB president Jean-Claude Trichet thinks he can tell the market what is going to happen. And once again the bond market says Trichet is a stubborn, arrogant fool.

Trichet Says No Greek Debt Restructuring

Please consider Trichet: Restructuring of Greek debt is “not on the agenda”

Greek debt restructuring, anticipated by markets, is “not on the agenda,” insisted Thursday the president of the European Central Bank Jean-Claude Trichet in Helsinki. Greece has adopted a plan of budget cuts, said Jean-Claude Trichet. “The important thing is to fill point,” he added, saying that it is the only way for this country to regain its “credibility” in the markets.
Trichet Says No Irish Debt Restructuring

The ECB sings the same tune for Ireland as noted in Trichet reiterates opposition to Irish debt restructuring
EUROPEAN CENTRAL Bank (ECB) chief Jean-Claude Trichet has reiterated his opposition to any debt restructuring by Ireland, saying the terms of the EU-IMF bailout plan for the State have been approved by “the entire world”.

Mr Trichet’s remarks before a committee of the European Parliament come against the backdrop of demands for the renegotiation of key elements of the deal by Fine Gael and Labour, which hope to be in government within weeks.

“We have plans. The plans have to be executed, have to be implemented in the best fashion possible as has been the case the world over and it is very, very important in my opinion not to confuse things,” he said.

“We have a programme, approved by the international community, approved by the IMF board, the entire world, approved by the European [Union], approved and financed by the IMF and the European [Union].
Complete Nonsense

The world did not approve these bailouts. Instead, the bailouts were approved by the creditor nations at the expense of the debtor nations for the sole benefit of creditor nation banks.

Greece, Ireland, and Portugal cannot possibly pay back debts on the terms "agreed to" and Trichet is an arrogant fool if he thinks he can dictate his will on the markets.

Greek 2-Year Government Bonds



Ireland 2-Year Government Bonds



Portugal 2-Year Government Bonds



Collateral for Extra Greek Aid

Bloomberg reports EU Said to Consider Requiring Collateral for Extra Greek Aid

European Union officials may require Greece to provide collateral for aid as policy makers struggle to prevent the euro area’s first sovereign debt restructuring, said a person with direct knowledge of the situation.

Expanding the 110 billion-euro ($158 billion) lifeline Greece received last year may mean that assets or revenue from asset sales are used to secure extra funds, the person said. Demanding collateral, an idea floated last year by Finland, may help avoid a political backlash against bailouts.

European Union finance officials, who held an unannounced meeting last night in Luxembourg, are preparing the help to ease a debt burden that some investors say will lead to a restructuring. Other steps may include lower interest rates or longer maturities on bailout loans, said Norbert Barthle, budget spokesman for German Chancellor Angela Merkel’s ruling party.

“We think that Greece does need a further adjustment program,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, said after yesterday’s gathering. “We’re not discussing the exit of Greece from the euro area. This is a stupid idea -- no way.”

Greece has already received an extension on bailout loans this year and policy makers in Athens say another lengthening would help avoid a broader restructuring.

Increasing aid may run into opposition in Germany and Finland, where bailouts have sparked a backlash. Finnish Finance Minister Jyrki Katainen, who suggested seeking collateral for Ireland for its November bailout, is leading talks to form a government that may include the euro-skeptic True Finns party.

The True Finns oppose the bailout for Portugal and see a Greek default as inevitable.

“It’s a question of time before a default will happen,” Party leader Timo Soini told Bloomberg Television May 5. “The bailout doesn’t work; we have seen that in Greece.”
Whole World Except ECB Thinks Default is Coming

If Trichet wants to address the world he would be advised to ponder what the world minus the ECB thinks of his statements. With the ECB emergency bailout fund nearly used up, and with Germany and Finland in opposition to more bailouts, it has now come down to "margin maintenance", which is to say, no more loans without collateral.

What if Greece tells the ECB to "go to hell"? What if Ireland does the same? What happens as soon as Spain needs a bailout?

I will tell you what happens: This whole mess will quickly go spinning totally and completely out of control. Thus, all this posturing and grandstanding by Trichet is not doing him or the ECB any good. The sooner Trichet accepts the obvious, the better off Europe will be.

The idea that sovereign debt cannot be defaulted on is preposterous. If it wasn't preposterous, Greek bonds would be trading at the same yield as German bonds.

If the bond market consistently and persistently insists haircuts are coming, I am not going to argue.

Perhaps at the emergency meeting this weekend, they manage to put another Band-Aid on the wound. Unfortunately, what's needed is an amputation.

Greece Denies Discussing Abandoning the Euro

The Telegraph reports Greek prime minister denies talking about plan to leave the euro
A German news magazine set off a flurry of speculation among markets and caused the euro to fall sharply against the dollar after it reported discussions of a plan for Greece to leave the euro and return to the drachma - a move which would trigger a financial and political earthquake.

George Papandreou, the Greek prime minister, who also attended the clandestine gathering, said: "The meeting in Luxembourg was aimed at discussing various logical steps. But these wild scenarios are very negative for everyone, for the Greek public, for foreign interests who want to invest in Greece.

"These are groundless reports, provocations put out by irresponsible people aimed at speculation, at profiteering."

Jean-Claude Juncker, head of the group of euro zone finance ministers who attended the meeting, also scrambled to deny that Greece was considering a secret plan to withdraw. "We have not been discussing the exit of Greece from the euro area," he said. "This is a stupid idea. It is an avenue we would never take."
Arrogance of Jean-Claude Junker

Jean-Claude Juncker, head of euro zone finance ministers (not to be confused with ECB head Jean-Claude Trichet), is also an arrogant fool. It is not up to the EU finance ministers to tell countries what they can or cannot do. If Greece decided to abandon the Euro, there is not a damn thing Junker can do about it.

Greece in Nasty Bind

Note that Greece is in a particularly nasty bind because its pension plans are loaded up with Greek sovereign debt garbage. Imagine what a default would do to the value of those bonds and the value of those pensions.

That pension debt, which Greece should have dumped long ago is the only reason Greece is so adamant there will not be a default. For the same reason it may be stuck with the Euro.

Perhaps Greece foolishly does pledge collateral. If so, it will be interesting which islands it is prepared to lose because the bond market says default is coming regardless of what Trichet thinks or what Greek Prime Minister George Papandreou thinks or says.

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