Possibility of a Greek default in next week

[Tehanu]

There is a good possibility that Greece will default in the next week. In fact possibly Monday. Note that this is still highly speculative and there is no hard evidence for it. However, if I hadn't sold my stocks back in April I would be getting out. That's just me though.

The danger sign is that the ECB has suddenly decided to swap its Greek bonds for ones which are senior to everyone else's, which means that it alone is safe in a Greek default. Now, of course being stupid, the market immediately rallied. However what it means is that the ECB has suddenly changed the rules of the game which casts doubt on bonds everyone else has in Italy, Portugal etc. Which is why the market rally was stupid, regardless of whether Greece defaults. One plausible reason for the ECB strange behaviour is that it is front-running a Greek default in exchange for promises to maintain financing to Greece afterwards.

This along with the changing rhetoric from northern Europe in the last few weeks along the lines of "You know I think we can handle a Greek default" and even the Greek finance minister saying there were a lot of governments in Europe who didn't want Greece to stay in the Eurozone suggests that Germany et al. may not bail out Greece. In fact recently, everytime Greece promises something, Germany or other Northern European nations ups the ante.

Also to add some extra cheer, the Chinese commerce ministry says the exports outlook is grim and the IMF expects that if the European situation blows up, Chinese growth may halve.

http://www.bloomberg.com/news/2012-...a-second-time-as-europe-threatens-growth.html

Articles on Greece (some just noting the odd moves and not actually necessarily supporting the Greece default thing - as I said this is highly speculative):

http://www.dowjones.com/products/dj...IGNARELLAWillGreecedefaultasearlyasMonday.asp

http://www.macrobusiness.com.au/2012/02/greece-is-out-of-time-again/

http://blogs.reuters.com/felix-salmon/2012/02/17/the-greece-game-turns-chaotic/

http://seekingalpha.com/currents/post/153241?source=feed

Anyway, it will be interesting to see what happens next week!

 

[Sunfish]

Forget where I read it but it is set for after close on Fri 23 rd March.

You read it here first. LOL

Be long gold, short banks.

 

[Intrinsic_Value]

Think you have it in you to solve the problems:
Here's a choose-your-own adventure type story.

http://crookedtimber.org/2012/02/16/so-what-would-your-plan-for-greece-be/

dammed if you do and dammed if you dont.

 

[Ocean Architect]

Forget where I read it but it is set for after close on Fri 23 rd March.

You read it here first. LOL

Be long gold, short banks.

You're talking about the timetable for Greek default on close of business friday 23rd March that has been in the hands of senior financiers for more than a month. If you google that phrase, it'll come up in a news article.

 

[Aaron Sice]

i think the only option is to default, remove themselves from the euro, thereby entering a short, sharp deflationary period.

greek holidays will be cheaper than bali and every one will go there.

manufacturing will be more competitive than turkey.

people will have jobs as created but be in negative equity for a while.

i honestly think this is the only option.

and if they default, gold will go 1900+ overnight and CBA shares will halve over a 6 month period.

and then CBA will make aussies pay for their exposure, all legal, of course.

 

[Intrinsic_Value]

i think the only option is to default, remove themselves from the euro, thereby entering a short, sharp deflationary period.

greek holidays will be cheaper than bali and every one will go there.

manufacturing will be more competitive than turkey.

people will have jobs as created but be in negative equity for a while.

i honestly think this is the only option.

and if they default, gold will go 1900+ overnight and CBA shares will halve over a 6 month period.

and then CBA will make aussies pay for their exposure, all legal, of course.

yes this action strategy will be phase 2, but phase one will be internal chaos in Greece.

How do the banks operate?
What % of greek pensions are tied up in Greek government bonds?
How will the government pay for things given they are runing a structural deficit? The government will be forced to immediately stop a % of their payouts, that will include pensions, salaries, payment for supplies, military etc etc.
How will businesses operate immediately after, especially those importing.
How do people collect their salaries if the banks are shut??

By the way CBA shares will not drop by 50%. Greece is too small to effect global affairs. You need Spain or Italy to default before this happens.

 

[Tehanu]

The hilarious thing is, even if Greece never joined the Eurozone, the chances of it getting into financial trouble would have been very high. See for example the long list of Greek defaults:

http://www.forbes.com/sites/investor/2011/09/28/debt-defaults-have-greek-history/

Greece has defaulted on its external sovereign debt obligations at least five previous times in the modern era (1826, 1843, 1860, 1894 and 1932). The first episode occurred in the early days of that country’s war of independence, and the last default was during the Great Depression in the early 1930s. The combined length of period under which Greece was in default during the modern era totaled 90 years, or approximately 50% of the total period that the country has been independent. (For related reading, see Recession and Depression: They Aren’t So Bad.)

After its last default it was frozen out of the markets until 1964.

And this is not even counting the devaluations!

And the even funnier observations of the French author Edmond About in 1858:

http://www.presseurop.eu/en/content/article/1521511-greece-1858-plus-ca-change

Greece is the only known example of a country that has lived in bankruptcy since the day that it was born. If such a situation were to prevail in France or England for just one year, we would see terrible catastrophes. Greece has peaceably lived with bankruptcy for more than 20 years. All of the country’s budgets, from the very first to the one just out, have been in deficit.

In civilised countries, when the sum of revenues is not sufficient to cover the budget for expenditure, the difference is made up by an internal loan. However, the Greek government has never tried to obtain such a loan and any attempt to do so would have been in vain.

The powers that protect Greece have been obliged to guarantee the solvency of the Greek state so that it can negotiate with external lenders. But the loans thereby obtained have been squandered by the government without any benefit to the country: and now that this money has been spent, the guarantors have no other option but to have the good grace to pay the interest, which Greece cannot reimburse.

Wealthy property owners succeed in frustrating the state

Today, the country has given up all hope of paying off its debts. And if the three powers continue to pay indefinitely in its stead, Greece will not be much better off because its outgoings will always be greater than its income.

The taxpayers have followed the example of the tax collectors: they do not pay.

With that sort of history, even without being trapped in the euro, Greece would have got into financial trouble eventually.

I think though the Greeks are seriously underestimating the effects of a default. Unlike when they previously defaulted, Greece is no longer a self-sufficient country. It imports substantial amounts of its food and of course oil. With the exception of tourism, it has let its export industries go to waste - it's a bit difficult to build them up again when no-one will lend you the capital to do so. Also Greece has lived the good life over the last decade due to Eurozone transfers. It is one thing to go from poor to poor but it is another thing to go from relatively rich to poor. The problem is since they never "earned" their way to the rich phase, but had it all given to them on credit I don't think they have the strength or ability to dig themselves out. I have more faith in the ability of the Irish, Spanish and Eastern/Central Europeans to dig themselves out. The countries had enough discipline to regularly run surpluses during boom periods at least.

As mentioned already, Greece is running a structural deficit which means that even if it doesn't make any repayment on its loans it will still have to cut savagely just to pay for pensions, wages etc. The best time to default is actually after you got a structural surplus...

Anyway, let's see what happens next week. Perhaps my spidey-sense is wrong.

 

[jaycee]

The hilarious thing is, even if Greece never joined the Eurozone, the chances of it getting into financial trouble would have been very high. See for example the long list of Greek defaults:

http://www.forbes.com/sites/investor/2011/09/28/debt-defaults-have-greek-history/



After its last default it was frozen out of the markets until 1964.

And this is not even counting the devaluations!

And the even funnier observations of the French author Edmond About in 1858:

http://www.presseurop.eu/en/content/article/1521511-greece-1858-plus-ca-change





With that sort of history, even without being trapped in the euro, Greece would have got into financial trouble eventually.

I think though the Greeks are seriously underestimating the effects of a default. Unlike when they previously defaulted, Greece is no longer a self-sufficient country. It imports substantial amounts of its food and of course oil. With the exception of tourism, it has let its export industries go to waste - it's a bit difficult to build them up again when no-one will lend you the capital to do so. Also Greece has lived the good life over the last decade due to Eurozone transfers. It is one thing to go from poor to poor but it is another thing to go from relatively rich to poor. The problem is since they never "earned" their way to the rich phase, but had it all given to them on credit I don't think they have the strength or ability to dig themselves out. I have more faith in the ability of the Irish, Spanish and Eastern/Central Europeans to dig themselves out. The countries had enough discipline to regularly run surpluses during boom periods at least.

As mentioned already, Greece is running a structural deficit which means that even if it doesn't make any repayment on its loans it will still have to cut savagely just to pay for pensions, wages etc. The best time to default is actually after you got a structural surplus...

Anyway, let's see what happens next week. Perhaps my spidey-sense is wrong.

So what's your point besides just finding hilarity in a nation, it's people and their plight ?

 

[Tehanu]

yes this action strategy will be phase 2, but phase one will be internal chaos in Greece.

How do the banks operate?
What % of greek pensions are tied up in Greek government bonds?
How will the government pay for things given they are runing a structural deficit? The government will be forced to immediately stop a % of their payouts, that will include pensions, salaries, payment for supplies, military etc etc.
How will businesses operate immediately after, especially those importing.
How do people collect their salaries if the banks are shut??

By the way CBA shares will not drop by 50%. Greece is too small to effect global affairs. You need Spain or Italy to default before this happens.

*Cough* Lehman's.

It's not the size of the collapsing entity that matters so much as the interconnections.

Still, I actually think the Greek default, if it occurs, will be relatively contained at first, at least in terms of the European banking system. The threat from the last war doesn't come back because people are actively looking for it. It will still cause problems, but I doubt it will cause wholesale collapse.

I'm still looking at China (housing bubble burst assisted by flow-on effects from Europe), the bursting of the commodity bubble or Eastern & Central Europe collapse as the next trigger.

 

[Tehanu]

So what's your point besides just finding hilarity in a nation, it's people and their plight ?

The point is that the consensus is the Euro is the source of Greece's problems and that as soon as Greece gets out of the Euro it will be on its way to recovery. Single problem, single solution.

In fact - quite a few economists are trying to cart around the default or devaluation option for other countries too. Just default or devalue. Easy! The recent upgrade of Iceland seems to support that.

However Greece's history shows that it is no-where near as simple as that. Which is why I doubt that a default will actually solve Greece's problems and may even make it worse. There are fundamental problems with Greece that date back centuries. I agree a default is necessary (the banks were stupid enough to lend to Greece...), but default without fundamental reforms will lead to disaster, for Greece that is, and any other country who thinks that they can just take the easy way out.

I think the chief lesson that comes the Greek default (whenever it may come) is that default/devaluation is not necessarily the easy way out. It is only default with the willingness to make wholesale fundamental reforms that works.

Actually I think Greece's default might be better for Europe than it is for Greece. The same fundamental problems with Greece mean that throwing more money at it in "bail-outs" (I use the term loosely since a lot of that money goes straight to loan payments) would never have solved the Greek problem either.

In the end, it is not up to foreigners to either dictate to Greece or to save it (depending on your political persuasion). Without the internal will to reform, neither bail-out or default will not solve Greece's problems. But default may help the rest of Europe.

 

[Aaron Sice]

yes this action strategy will be phase 2, but phase one will be internal chaos in Greece.

How do the banks operate?
What % of greek pensions are tied up in Greek government bonds?
How will the government pay for things given they are runing a structural deficit? The government will be forced to immediately stop a % of their payouts, that will include pensions, salaries, payment for supplies, military etc etc.
How will businesses operate immediately after, especially those importing.
How do people collect their salaries if the banks are shut??

By the way CBA shares will not drop by 50%. Greece is too small to effect global affairs. You need Spain or Italy to default before this happens.

so, you're saying that greece is too small to affect global affairs?

lets see.

greece default and shake up the eurozone.

spain defaults because greece did.

italy defaults because spain did.

ireland says "bugger this" and defaults too.

chinese worries start to surface on the back of negative IMF reports.

AUD is sold down.

panic sets in, ASX sold down.

BHP and RIO slammed, CBA takes a massive hit.

next week ill be buying more gold, some USD, lining myself up for a mid march purchase of Aug 3700 XJO puts and waiting to purchase CBA at under $30.

 

[Intrinsic_Value]

consider also the changing internal strategic relationship of NATO.

In times past Greece was considered important because of its location relative to the threat of communism, and thus NATO assisted in proping them up. This game has now moved on.

Even if Greece goes more towards communism in the upcomming elections (which according to polling data it seems to be doing), communism is no longer the international worry that it was during the cold war.

 

[Aaron Sice]

italy and spain are pumping money they cant afford into the rescue fund.

if greece bail, there'll be riots in italy and spain to rival those in greece.

think about the chain reaction, not the singular event.

 

[jaycee]

The point is that the consensus is the Euro is the source of Greece's problems and that as soon as Greece gets out of the Euro it will be on its way to recovery. Single problem, single solution.

In fact - quite a few economists are trying to cart around the default or devaluation option for other countries too. Just default or devalue. Easy! The recent upgrade of Iceland seems to support that.

However Greece's history shows that it is no-where near as simple as that. Which is why I doubt that a default will actually solve Greece's problems and may even make it worse. There are fundamental problems with Greece that date back centuries. I agree a default is necessary (the banks were stupid enough to lend to Greece...), but default without fundamental reforms will lead to disaster, for Greece that is, and any other country who thinks that they can just take the easy way out.

I think the chief lesson that comes the Greek default (whenever it may come) is that default/devaluation is not necessarily the easy way out. It is only default with the willingness to make wholesale fundamental reforms that works.

Actually I think Greece's default might be better for Europe than it is for Greece. The same fundamental problems with Greece mean that throwing more money at it in "bail-outs" (I use the term loosely since a lot of that money goes straight to loan payments) would never have solved the Greek problem either.

I see, now quite hilarious


By the way, just how many centuries ?

 

[Aaron Sice]

consider also the changing internal strategic relationship of NATO.

In times past Greece was considered important because of its location relative to the threat of communism, and thus NATO assisted in proping them up. This game has now moved on.

Even if Greece goes more towards communism in the upcomming elections (which according to polling data it seems to be doing), communism is no longer the international worry that it was during the cold war.

no offence, but i thought that was obvious when private debt was erased with public money.

if greece care little for the wants of their citizens and the needs of their country, im sure they care three fifths of f&&k all for NATO.

 

[Tehanu]

I see, now quite hilarious


By the way, just how many centuries ?

Of course it's hilarious. It's hilarious because everyone is throwing around solutions like bail-outs or defaults or devaluation without even taking a good look at the situation such as Greece's history. For example you have the German's throwing German style austerity measures at Greece without thinking - wait would this actually work with the way Greek society works and their historical attitudes to taxes, authority and debt. Then you have the experts throwing around devaluation as if it was the simple act would solve Greece (and other PIIGS problems) without thinking, wait a moment, default or devaluation never solved their problems in the long-run before. Wait a moment, weren't they eager to enter the Eurozone to escape from the constant economic instability due to devaluations and defaults.

The most hilarious thing is the way no-one in authority seems to have the courage to tell the Greek people of the reality of the situation. Opinion seems to waver between treating the Greeks as lazy stupid bums or as hapless victims, who either way have to be "saved" by someone rather than encouraging them to save themselves. The referendum would have been a great idea because it would give the Greek people a real say in the solution and make them think things through.

I see a lot of hilarity in that. Hey look you either gotta laugh or you gotta cry at the stupidity of it all.

The real stupid thing is, not just in Greece but elsewhere - you have this weird situation where leaders are cowed by the mobs (so the mobs are in power) while at the same time the mobs are being led around the nose by the leaders and bankers (so the mobs are victims). I say, a pox on both their houses.

As for centuries - nearly two.

 

[Intrinsic_Value]

.

if greece care little for the wants of their citizens and the needs of their country, im sure they care three fifths of f&&k all for NATO.

yes they did, mainly because they were getting free money.

 

[Intrinsic_Value]

Of course it's hilarious. It's hilarious because everyone is throwing around solutions like bail-outs or defaults or devaluation without even taking a good look at the situation such as Greece's history. For example you have the German's throwing German style austerity measures at Greece without thinking - wait would this actually work with the way Greek society works and their historical attitudes to taxes, authority and debt. Then you have the experts throwing around devaluation as if it was the simple act would solve Greece (and other PIIGS problems) without thinking, wait a moment, default or devaluation never solved their problems in the long-run before. Wait a moment, weren't they eager to enter the Eurozone to escape from the constant economic instability due to devaluations and defaults.

The most hilarious thing is the way no-one in authority seems to have the courage to tell the Greek people of the reality of the situation. Opinion seems to waver between treating the Greeks as lazy stupid bums or as hapless victims, who either way have to be "saved" by someone rather than encouraging them to save themselves. The referendum would have been a great idea because it would give the Greek people a real say in the solution and make them think things through.

I see a lot of hilarity in that. Hey look you either gotta laugh or you gotta cry at the stupidity of it all.

The real stupid thing is, not just in Greece but elsewhere - you have this weird situation where leaders are cowed by the mobs (so the mobs are in power) while at the same time the mobs are being led around the nose by the leaders and bankers (so the mobs are victims). I say, a pox on both their houses.

As for centuries - nearly two.

exactly mate, i glad someone else understands this on this forum.

 

[Tehanu]

exactly mate, i glad someone else understands this on this forum.

Hey, you can only get pissed off so many times at the stupidity of both the mobs and our "great" leaders before going, "Well at least I can find some humour in this"

Oh god, the referendum would have been a great idea. I know why they cancelled it - because the great European leaders are cowards. But still...unforced error. Then there was when they tried to play around with the definition of default and nearly blew up Italy. And why can't the Greeks mobs see that no, they can't back to the past. They have to make a decision, and every path available to them is painful.

This is why I prefer to find solace in humour. The alternative is going, "My God why why?" It's just the sheer stupidity and unnecessary nature of it all.

Err. But let's just wait over the next few days and see whether the Greeks default or not. This whole discussion may be unnecessary

 

[Aaron Sice]

yes they did, mainly because they were getting free money.

the term "Greece" means the Greek Government and the self/ECB serving politicians within. i mean, it's a laugh that the country reputed to have given birth to democracy has an ECB appointed leader....

the term "People" means those allowed to vote for their leaders.

the two are NOT the same.