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Sunday, May 29, 2011 1:28 PM

French President Says Bondholders Must Share Greek Pain; Greece Mulls Setting up Bad Bank; Lagarde Says Greece Needs "Support" Not Restructuring

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Christine Lagarde, French finance minister, fully cements her appointment as next IMF Chief, toes the previous IMF line with a nonsensical statement: Greece Needs ‘Support’ Instead of Debt Restructuring

Christine Lagarde, French finance minister and a candidate to head the International Monetary Fund, said Greece needs “support” and its debt shouldn’t be restructured.

“It’s essential that we retain a balance,” Lagarde said today on Europe 1 radio. “Greece has made significant efforts and we have to support those efforts,” she said.
Soft Default

Support, Reprofiling, soft restructuring, and restructuring all mean the same thing: default. As long as everyone is tossing out words to hide the obvious, the words "soft default" have still not been claimed.

Der Speigel Claims Greece Missed All Financial Targets

Via Google translate, please consider EU threatens Greece with funding freeze
Hamburg - It is a clear warning to the Greek government: Because of the lack of pace of reform, the European Union, the payment of the next loan tranche to Greece in question.

The International Monetary Fund (IMF) is considering the words of Prime Minister of Luxembourg Jean-Claude Juncker , the planned transfer to refuse June. "Over the next installment we will decide according to the report of the troika," said Rehn, adding: ". The situation is very serious"

The team of experts from the European Central Bank , IMF and EU Commission, the economic and fiscal condition of Greece examined the will, according to information obtained by SPIEGEL, in its quarterly report on an alarming finding: Greece miss all agreed fiscal targets
For those who can read German, here is the original link: EU droht Griechenland mit Zahlungsstopp

IMF Denies Greece Missed Targets

The IMF and Greek Finance Minister responded to Der Speigel report with Talks Continuing, Targets Not Missed
Greek Finance Minister George Papaconstantinou said talks with European Union and International Monetary Fund officials in Athens were still under way, denying reports the team had said Greece has missed its targets.

“The talks are continuing and will wind up in the next few days,” Papaconstantinou said in a phone interview with Greece’s Mega TV channel. “I have every reason to believe they will end positively for our country and that we will receive the fifth tranche.”

Papaconstantinou spoke to Mega after the TV channel reported unnamed IMF sources as saying the country had missed targets in a review under way under the 110 billion-euro ($157 billion) EU-led bailout. Greece is subject to quarterly reviews by a team of officials from the EU, IMF and European Central Bank before each payment of loans under the bailout.

The minister said Mega’s report and another cited by Mega in German magazine Der Spiegel were inaccurate as the inspection hadn’t finished and no report had been written.
Greece Mulls Setting Up "Bad Bank"

Not that it will accomplish anything useful in regards to avoiding default, MSNBC reports Greece mulls setting up Spanish-style "bad bank"
Greece is considering setting up a Spanish-style "bad bank" to clean up its lenders' accounts from "toxic" Greek bonds and make them more attractive to potential buyers, a Greek paper reported on Sunday.

A 'bad bank', formed to hold risky assets owned by a state guaranteed bank, could be set up to absorb the risky Greek bonds held by state-controlled lenders slated for privatization, such as the Savings Post Bank, To Vima said.

"With problematic, Spanish savings banks (cajas) as a model, the finance ministry is examining proposals to implement the idea in the country," it said, without citing any sources.

Spain's Bankia, created from the merger of seven cajas, said last month it would create such a unit in a bid to attract investors ahead of a stock market listing.

Greek banks are believed to hold roughly 50 billion euros of Greece's outstanding sovereign bonds. The bonds have lost much of their nominal value in the wake of the Greek debt crisis, while a possible Greek debt restructuring could mean additional losses for the lenders.
Bondholders Must Share Greek Pain

Interestingly, French President Nicolas Sarkozy is now at odds with his finance minister, Christine Lagarde, over the need to restructure.

The Independent reports Bondholders must share Greek pain, says Sarkozy
French President Nicolas Sarkozy said bondholders need to share the burden of solving Greece's fiscal woes, following leaders in Germany and Luxembourg in raising the prospect of restructuring Greek debt.

Mr Sarkozy called for a "formula" involving investors, adding to talk that Europe might engineer an extension of Greece's debt-repayment schedule or press bondholders to buy new bonds as old ones mature.

"Restructuring is a poorly used word," Mr Sarkozy told reporters yesterday after a G8 summit in Deauville, France. "If it means that we can think of ways for the private sector, private operators, to take on a share of the burden, it's not restructuring at all; then there are formulas, there is no problem, and we should then converge in that direction."

Greek 10-year bonds trade at less than 55c on the euro, a sign of investors' diminishing expectations of being repaid in full.

Greek leaders meeting in Athens last night failed to agree on Prime Minister George Papandreou's new austerity plan. Conservative leader Antonis Samaras rejected the measures, saying they would "flatten the Greek economy and destroy Greek society".

In his first comments on a potential Greek restructuring, Mr Sarkozy gave no timeline for talks on pushing bondholders to take losses in Greece. A planned permanent European rescue fund would mandate some form of "private sector involvement" as of mid-2013.
No Problem?

Excuse me, but all three rating agencies said that any extension of Greek debt would be considered a default and trigger CDS contracts.

Back of Irish Government Will Crack

Think this crisis can be postponed to mid-2013? Including Ireland and Portugal?

I don't nor does Nouriel Roubini. The article continues ...
For now, economists including Nouriel Roubini estimate that Greece has a financing hole of about €60bn over the next two years.

Meanwhile, Ireland may be plunged into a "disastrous" sovereign debt crisis within three years as the cost of rescuing its banks mounts, Nouriel Roubini, who predicted the global financial crisis, said.

"Eventually the back of the government is going to crack" by "taking all the huge losses of the banking system," said Mr Roubini at a conference in Budapest yesterday.

The approach will "lead us with almost near certainty to a sovereign debt crisis in Ireland in a matter of two or three years".

"Eventually we're going to have a sovereign debt crisis that's going to be disastrous for Ireland and for the eurozone," Mr Roubini said.
Eventually will arrive sooner, rather than later.

Indeed, I would not be surprised if this crisis blew sky high within weeks or even days. That said, perhaps there is one more rabbit in the hat. There always seems to be.

Mike "Mish" Shedlock
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