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Kiron Sarkar
September 28, 2011
Hi there,
This presentation (view presentation) was doing the rounds yesterday. On the face of it, it
seems great, but, in my humble view, its a load of old rubbish.
Greece initially proposed to privatise E50bn of assets. These "assets"
are worth a fraction of the E50bn. JPM estimate around E10bn - E15bn.
There is a huge problem re title in Greece, particularly re land. As a
result, where do the Greeks get the E125bn of "assets" - well that's a
real Greek fable.
If Greece gets its money up front and buys back its debt at a discount
(buying back debt at a massive discount is a good idea as it will reduce
debt to GDP), it has got the EU by the "short and curlies". The Greeks
have never been known to deliver - if they have the money up front, they
will be less inclined to do so in the future. Yes, they could be subject
to sanctions re further aid etc unless they comply, but its a huge risk.
The only way this works is to drip feed Greece aid on the basis that
they meet predetermined commitments. You have to maintain the pressure
on them.
Roland Berger - met some of their execs a long time ago. They were
involved in pretty small stuff, as I recall. Certainly not a leading
firm.
In summary, if the Euro Zone goes for something like this (I remain
unconvinced), it's further proof as to just how clinically insane they
really are.
Reducing Greek debt to GDP by buying back debt at a large discount is a
great idea.The Troika is likely to forecast that Greek debt to GDP will
approach 200% - they revisit Athens today. The EU target was for debt to
GDP to be a max of 60% - remember that. It is why I expect a haircut on
Greek debt to be over 70%. However, providing funds, secured on Greek
"assets" - well.........
I suppose there is one born every minute.
The key today is not whether the Germans pass the changes to the EFSF
legislation - they will, as the opposition SPD and Greens will vote for
it. It is how many of members of Merkels party/coalition partners vote
against the legislation. In addition, it is clear that the EFSF is not
at all flexible and unfit for the role it is intended to do. US markets
believe that Europe has come up with a solution - Europe has not. It
will, but its not at all there as yet.
Be careful.
Best
Kiron
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