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Tuesday, February 03, 2015 2:45 PM

Smart Debt Engineering: Markets Giddy Over Greek Debt Proposal; ECB Nixes Plan Already; Party On Dudes

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Smart Debt Engineering

The markets are giddy today over a Plan to End Debt Standoff released yesterday by Greek finance minister, Yanis Varoufakis.

Varoufakis said the government would no longer call for a headline write-off of Greece’s €315bn foreign debt.

Instead, Greece wants "Smart Debt Engineering" that would avoid the need to use a term such as a debt “haircut”, politically unacceptable in Germany and other creditor countries because it sounds to taxpayers like an outright loss.

Apparently a haircut is OK as long as it's not called a haircut! 

Varoufakis seeks a “menu of debt swaps” to ease the burden, including two types of new bonds. The first type, indexed to nominal economic growth, would replace European rescue loans, and the second, which he termed “perpetual bonds”, would replace European Central Bank-owned Greek bonds.

Perpetual bonds: clearly never meant to be paid back. Gotta love the honesty of the idea.

ECB Nixes Plan Already

Today the European Central Bank Said "No" Latest Greek Bailout Plan.

Yanis Varoufakis, Greek finance minister, had proposed to European officials that Athens raise €10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is agreed with its eurozone partners.

But the ECB is unwilling to approve the debt sale. It will not raise a €15bn ceiling on t-bill issuance to $25bn as requested by Athens, according two officials involved in the deliberations. “The Greek plan relies fully on the ECB,” said another eurozone official briefed on the talks. “The ECB will play hardball.”

Jean-Claude Juncker, the European Commission president, is expected to press Alexis Tsipras, the new Greek prime minister, to ask for a “technical” extension of the current bailout when the two men meet in Brussels on Wednesday.

Eurozone finance ministers are expected to hold emergency talks in Brussels on February 11 to discuss Mr Varoufakis’s plans. The Greek finance minister is due to meet Mario Draghi, ECB president, in Frankfurt on Wednesday.

Officials who have met Mr Varoufakis say he has insisted the new government cannot ask for an extension for political reasons, since it would send a signal they are willing to go along with the current bailout — a message Mr Varoufakis reiterated at meeting on Monday in London with leading bankers.
Markets Giddy Over Greek Debt Proposal

Even though no one has agreed to the Greek plan, the markets are giddy anyway, simply over the prospect of a settlement.

  • The euro rose .015 to 1.150.
  • Yields on 3-year Greek bonds fell from 20% to 16.5%.
  • The safe haven of US treasuries sold off a bit.
  • Commodities are up across the board, except for gold. Energy is leading the way. Brent is up $3 to $57.72 and West Texas Intermediate is up $3 to $52.69.

Party on Dudes

It's all meaningless of course. Nonetheless, the Wall Street motto remains "Party On Dudes".

Yes, I have a video tribute for that.

Link if video does not play: Wayne's World at the 2008 MTV Movie Awards.

Mike "Mish" Shedlock

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