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Kiron Sarkar
February 8, 2012
Hi there,
Mrs Merkel states (only yesterday) that she wishes to see Greece remain in the Euro Zone. However, her recent actions suggest otherwise.
First, the Euro Zone remained tough in recent negotiations with Greece re the conditions to be attached in respect of the additional bail out - remarkable for a normally totally wimpy bunch of people - basically Mrs M/Germany inspired, which Mr Sarkozy went along with;
Second, a portion of bail out funds will be retained to pay off private sector bond holders;
Third, news today from FT Deutschland (have not got the report - trying to find it in English) suggests that funds will be provided in small amounts - subject to Greek complying with the terms of its bail out agreement - which they wont.
OK, no EU Finance Minister to be imposed on the Greeks, as proposed by the Germans - who would want the job anyway? Any of you want to volunteer? However, the above effectively means that the Euro Zone has control over Greece's overall finances.
As I keep banging on, a Greek exit from the Euro Zone may not be the nuclear explosion that it would have been some time ago. The market expects it, the ECB has tools (in my humble view) to prevent contagion (longer LTRO's for example), and I would argue that the Euro Zone would be deemed more stable, ex Greece.
Seems like Mrs M does not want to (publicly) pull the trigger (which I can understand), but will shed no tears if it happens. Basically, the "I tried my best, but the Greeks......" line. Could also be a salutary lesson to other Euro Zone countries.
Why should anyone be surprised.
Interestingly, Mrs M is rising in popularity in Germany - a Greek exit would help even more. In addition, German politicians/officials have expressed positive views re Portugal - trying to build a firewall around the next obvious contagion target?.
The WSJ report that the ECB will "sell" its holding of Greek bonds to the EFSF (at cost?) in exchange for EFSF bonds, with the EFSF on selling the bonds to Greece? (where's the funds coming from?) - means that the other PIIGS will be treated similarly in due course - its only a matter of time. Certainly will reduce overall debt levels of the rest of the PIIGS, and, most importantly, diminish contagion threats following a potential Greek exit.
Interestingly, the deputy CEO of the EFSF, Mr Frankel, stated that the EFSF will play a significant role in the PSI and the Greek programme - not sure what that entails. The acting PM Mr Papademos is to meet with the main political parties at 2.00pm GMT today (Source FT). Great, whoopee, but...
The EU has spent too much time on Greece. Euro Zone politicians/officials have expressed increasing frustration - yesterday the Dutch EU Commissioner Ms Neelie Kroes suggested that a Greek exit would not cause a major problem for the Euro Zone. Todays data, which reveals a collapse of tax revenues, confirms that Greece is a basket case - no other way to describe the country. Yesterday, leaked info from the Troika's report suggested that Greece was facing "catastrophic conditions".
How, pray, can the proposed bail out work in these circumstances.
You will recall that Greece lied to get into the Euro and then lied yet again, to hide the level of their debt.
The above is pure (and, may I add, unsubstantiated) speculation on my part, but......
Kiron
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