Portugal, Not Greece, Poses The Greater Existential Threat To Europe’s Monetary Union

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CDS Traders Are Betting That France Is Next Up For A Sovereign Shakedown (As Are Spain And Portugal)


Must Germany bail out Portugal too?

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The historic part of Lisbon, the Portugeuse capital, recreated after an earthquake devastated the City in 1755

The long-drawn saga in Athens can perhaps be deemed a case apart. Greece lied. Its budget deficit was egregious at 16pc of GDP last year on a cash basis. It wasted its EMU windfall, the final chance to bring public debt back from the brink of a compound spiral.

You cannot blame the euro for this, although EMU undoubtedly created a risk-free illusion that lured both Athens and creditors deeper into the trap – and now prevents a solution. Nor would an orderly default under IMF guidance along Uruguayan lines necessarily imperil Europe’s banks. The Bundesbank hints that letting Greece go would prove a healthier outcome for EMU in the long run, upholding discipline.

However, Portugal did not cheat (much) and did not start as an arch-debtor. It did mishandle the run-up to EMU in the 1990s, failing to offset a fall in interest rates from 16pc to 3pc with fiscal tightening. Boom-bust ensued. But that was a long time ago. Portugal has since settled down to a decade of sobriety. The reward never came.

Brussels admitted last week that Portugal’s external accounts have switched from credit in the mid-1990s to a deficit of 109pc of GDP. This has been caused by the incentive structures of EMU itself. “The more broadened access to credit induced a significant reduction in the saving rate, while consumption kept growing faster than GDP. This development led to an increase in Portuguese indebtedness,” it said.

The IMF’s January report – worth examining for its horrifying charts – said “The large fiscal and external imbalances that arose from the boom in the run-up to adoption of the euro have not been unwound, resulting in the economy becoming heavily indebted and growing banking system vulnerabilities. The longer the imbalance persists, the greater the risk the adjustment will be sudden and disruptive.” The IMF noted the “heavy reliance” of banks on foreign wholesale funding, equal to 40pc of total assets.

Read morePortugal, Not Greece, Poses The Greater Existential Threat To Europe’s Monetary Union

CDS Traders Are Betting That France Is Next Up For A Sovereign Shakedown (As Are Spain And Portugal)

CDS traders were prescient in snapping up Greek and Dubai CDS long before anyone else realized the risk these countries are in (well, more like Goldman selling CDS to some very close clients, wink wink).

In exchange for figuring out what it took cash bond holders months to understand, these ‘speculators’ made a lot of money and in the process got branded as quasi-sovereign terrorists.

Well, Greece can sleep well: according to the latest DTCC CDS data (for the week ended April 9), CDS specs have completely deserted Greece, which saw the single biggest amount of Net Notional CDS decrease, to just over $8 billion, a reduction of $367 million in the prior week (which means all the widening in Greek spreads is now, and has been, just cash bond sales, precisely what Zero Hedge has claimed all along).

CDS traders are now focusing their attention on the one country which has so far slipped under everyone’s radar, yet which we disclosed is more on the hook in terms of Southern European exposure than even Germany: France, with $781 billion in total claims.

Should Greece topple the PIIGS dominoes, France will implode. And this is precisely what CDS traders are betting on now, taking advantage of absurdly tight France CDS levels.

Also, just in case they are wrong on France, Spain and Portugal, not surprisingly, round out the top three names in which Net Notional saw the largest increase. Also not surprisingly, Japan rounds out the top 5 deriskers.

Top 10 deriskers:

(Click on images to enlarge.)
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Read moreCDS Traders Are Betting That France Is Next Up For A Sovereign Shakedown (As Are Spain And Portugal)

Rep. Ron Paul Grills Bernanke On The Massive Expansion To The IMF’s New Arrangement To Borrow


Added: 14. April 2010

As we reported a few days ago, the IMF massively expanded its last resort bailout facility (NAB) by half a trillion dollars, in which the US was given the lead role in bailing out every country that has recourse to IMF funding.

Yesterday, Ron Paul grilled Bernanke precisely on the nature of the expansion of the US role to the NAB:

“The IMF has announced that they are going to open up the NAB which coincides with the crisis in Greece and Europe and how they are going to bailed out.

The irony of this promise is that in the new arrangement Greece is going to put in $2.5 billion in. I think only a fiat monetary system worldwide can come up and have Greece help bail out Greece and be prepared to bail out even other countries.

But we are going from $10 to $105 billion… We are committing $105 billion to bailing out the various countries of the world, this does two thing I want to get your comments on one why does it coincide with Greece, what are they anticipating, why do they need $560 billion, do we have a lot more trouble, and when it comes to that time when we have to make this commitment, who pays for this, where does it come from?

Will this all come out of the printing press once again, as we are expected to bail out the world? Are you in favor of this increase in the IMF funding and our additional commitment to $105 billion?”

Read moreRep. Ron Paul Grills Bernanke On The Massive Expansion To The IMF’s New Arrangement To Borrow

Q&A With Billionaire Jim Chanos Part I: ‘Greece Is A Prelude’

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Last week had the opportunity to visit Kynikos Associates in Manhattan and speak with its President, famed short-seller James S. Chanos.

The billionaire hedge funder is the stuff of legend. He made a killing shorting companies like Tyco, Worldcom, and of course, Enron. Chanos spoke with us at length on everything from how he discovered Enron’s problems to the issues at hand with Greece to the ongoing problems in China.

We’ll be running several posts on our Q&A sessions with Chanos throughout the week.

Today we talk about Dubai, Greece, and the role of derivatives in these markets.

———————–

Business Insider: Let’s talk about Dubai and Greece. Dubai – was it just a case of a nation that saw too much growth and excessive debt?

Jim Chanos: No, no. Dubai was a property bubble. Plain and simple. Go to Dubai and see what happened. It was…what I call it the “Ediffice complex” – it’s just, we can grow by putting up lots and lots of buildings and trying to attract people to come here, stay here, and put up offices here and sooner or later, you put up too many. And whether it’s the Palm Island project or the indoor ski resort or, you know, take your pick because everyone has lots of Dubai stories. At first it seemed plausible and economic and by the end of the boom, they were putting on drawing boards all kinds of crazy projects. So it didn’t take a rocket scientist to see the excesses. They were pretty visible to the naked eye.

Greece is a different issue. We’re not involved. We don’t trade sovereign debt, we don’t trade CDSes. You know I feel bad for my mother country in that they’re going through a lot of austerity now and I actually think that the Prime Minister and his team are doing the right thing. I met with them recently, actually, in Washington [DC] and they gave a pretty rational response to a problem that they, quite frankly, inherited.

You know they came in and discovered the hole in the budget deficit and discovered a lot of the off balance sheet stuff that was not of their doing. And he’s taking the politically unpopular step of extending the retirement age and cutting government wages not knowing if it’s going to be enough and so far the market is pretty skeptical, but I think the Greek government is being more courageous than some of the other western-European governments who aren’t addressing these issues and are going to be facing these same problems like Greece down the road. So Greece is a prelude to the problems that a lot of other countries will face that have made promises to their people without the ability to pay for them.

Read moreQ&A With Billionaire Jim Chanos Part I: ‘Greece Is A Prelude’

The No.1 Trend Forecaster Gerald Celente on ObamaCare, Dollar Devaluation And Gold

Just in case you think what Gerald Celente says here is far-fetched:

‘All bets are off’ if US under WMD attack: Clinton (AFP):

Secretary of State Hillary Clinton said Sunday the United States could not rule out using nuclear weapons if it came under biological attack, saying in that case “all bets are off.”

“If we can prove that a biological attack originated in a country that attacked us, then all bets are off,” Clinton said in an interview with CBS’s “Face the Nation.”

This is your government preparing you for the next false flag terrorist attack.

The next US target will (most probably) be Iran:

US shipping hundreds of powerful bunker buster bombs for coming attack on Iran

An attack on Iran will start WWIII.


“The Worst Is Yet To Come.”

1 of 2:

Date: 11th Apr 10

“We Believe Gold 2000.”

2 of 2:

Date: 11th Apr 10

More from Gerald Celente:

Read moreThe No.1 Trend Forecaster Gerald Celente on ObamaCare, Dollar Devaluation And Gold

Greece Bailout: EU Governments Offer 45 Billion Euro Rescue Package

Not one day to early:

GAME OVER – Greek Curve Goes Apeshit: Bloomberg Reports 3 Month Bid At 21.3%

Greece: They’re Done

The next candidates are Portugal, Spain, Ireland and Italy.

And then the euro and the entire EU will fail.



April 11 (Bloomberg) — European governments offered debt-burdened Greece a rescue package worth as much as 45 billion euros ($61 billion) at below-market interest rates as they try to end its fiscal crisis and restore confidence in the euro.

Forced into action by a surge in Greek borrowing costs to an 11-year high, euro-region finance ministers said they would offer as much as 30 billion euros in three-year loans in 2010 at around 5 percent. That’s less than the current three-year Greek bond yield of 6.98 percent. Another 15 billion euros would come from the International Monetary Fund.

“This is a step of clarification that markets are waiting for — it shows there is money behind this,” Luxembourg Prime Minister Jean-Claude Juncker told reporters in Brussels today after chairing the ministers’ conference call. “The initiative for activating the mechanism rests with the Greek government.”

With the euro facing the sternest test since its debut in 1999, the 16-nation bloc maneuvered around rules barring the bailout of debt-stricken countries, aiming to prevent Greece’s financial plight from spreading and to mute concerns about the currency’s viability. Germany also abandoned an earlier demand that Greece pay market rates.

Read moreGreece Bailout: EU Governments Offer 45 Billion Euro Rescue Package

Germany’s Bundesbank: Greek Rescue as a Threat to Economic Stability and Probably Illegal; Calls IMF ‘Inflation Maximising Fund’

See also:

Greek Debt Crisis Deepens; Investors Rush to Sell Greek Bonds

The Solution For Greece (Max Keiser, Matt Taibbi and Catherine Austin Fitts)


Germany’s Bundesbank has fired a warning shot at Chancellor Angela Merkel, attacking the joint EU-IMF rescue plan for Greece as a threat to economic stability and probably illegal.

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The Bundesbank, headed by ultra-hawk Axel Weber, said the decision to bring in the IMF makes matters worse, arguing that the EU would impose tougher budgetary discipline. Photo: Reuters

Leaked extracts from an internal report appeared in the Frankfurter Rundschau and may have contributed to a fresh day of mayhem for Greek bonds. Investors were already digesting reports that Greek residents had shifted €10bn (£8.8bn) abroad over the first two months of the year.

The yield on two-year Greek bonds surged by 136 basis points in early trading to 8.3pc, up from 5.2pc last week. The market stabilised later as Athens announced a 40pc cut in the budget deficit over the first quarter, suggesting that austerity measures are bearing fruit.

The Bundesbank document offers a withering critique of the deal agreed by EU leaders two weeks ago, saying the plan had been cobbled together without consulting central banks and will lead to monetisation of debt. “It brings problems in respect to stability policy that should not be underestimated.”

The joint rescue between the IMF and the EU would turn the Bundesbank into a “money-printing machine” for the purchase of Greek bonds, according to Rundschau. This would breach the EU’s ‘no-bail clause’.

Hans Redeker, currency chief at BNP Paribas, said the report greatly strengthens the hand of EMU critics in Germany. A group of professors is already itching to file a complaint at the constitutional court to block the Greek rescue. “This reduces Merkel’s room for manoeuvre to zero,” he said.

The Bundesbank, headed by ultra-hawk Axel Weber, said the decision to bring in the IMF makes matters worse, arguing that the EU would impose tougher budgetary discipline.

The report mocked the IMF as the “Inflation Maximising Fund”, saying the body had gone soft under Dominique Strauss-Kahn, a French socialist and Keynesian. It has shifted focus from fiscal cleansing to “growth-oriented” financial policies. “Currency reserves from the Bundesbank cannot plausibly be made available for such purposes,” it said.

Read moreGermany’s Bundesbank: Greek Rescue as a Threat to Economic Stability and Probably Illegal; Calls IMF ‘Inflation Maximising Fund’

Greek Debt Crisis Deepens; Investors Rush to Sell Greek Bonds

See also:

Germany’s Bundesbank: Greek Rescue as a Threat to Economic Stability and Probably Illegal; Calls IMF ‘Inflation Maximising Fund’

The Solution For Greece (Max Keiser, Matt Taibbi and Catherine Austin Fitts)


Market Turmoil Hits The Euro And Adds to Fears of Economic Collapse in Greece

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Some European leaders, including Angela Merkel of Germany, have said that Greece should have to borrow money at market rates. (Photo: EPA)

The Greek debt crisis deepened today, despite reassurances from European Union officials that the country was not on the brink of default.

Financial markets ignored European Central Bank President Jean-Claude Trichet’s comments that “a default is not an issue for Greece,” and continued their bond sell-off for a third day.

The yield on Greek bonds – which the country needs to pay to fund its schools, hospitals and other public spending – rose to 7.35%, almost twice as much as Britain’s. This puts more pressure on Greece, making its financing practically unsustainable. Investors want more details about a potential bailout package, something that the EU has so far failed to provide, dragging the crisis into its fourth month.

“It’s like game theory,” said Michael Krautzberger, head of European fixed-income at Blackrock, whose team manages $50bn (£33bn) in bond funds. “At the beginning of the crisis, the EU didn’t want to give help too quickly because they wanted to pressure Greece to cut their budget, but now we have reached a point where it’s clear they need the help. For a few weeks, we thought maybe they don’t need the help, now we have passed that point, the yields are now too high to stay too long.”

The premium that investors demand to buy Greek bonds soared to 440 basis points over German bunds, the highest since the euro was created a decade ago. The cost of insuring $10m of Greek debt leapt to a record $470,000, from $410,000 on Wednesday, before settling back at about $435,000, according to Markit data. That is more than four times the price paid for Britain’s debt protection.

The turmoil sent the euro and European equity markets lower, as a collapse of the Greek economy could have a domino effect on other southern European countries, such as Portugal. The euro weakened to $1.328, although it recovered slightly after Trichet’s comments, trading near $1.334. All major European stock indexes lost about 1%.

“Greece continues to look like a slow-motion train crash,” Steve Barrow, analyst at Standard Bank, said. “The crash has not occurred yet but it is coming. Efforts to avoid a crash seem doomed to failure, whether it is emergency loans or some other initiative. As the crisis plays out, so bond spreads are likely to widen much further and the euro fall much more.”

Read moreGreek Debt Crisis Deepens; Investors Rush to Sell Greek Bonds

Greece Credit Default Swaps Trade Higher Than Iceland’s for First Time

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April 7 (Bloomberg) — Credit-default swaps linked to Greece sovereign debt rose higher than those tied to Iceland for the first time, helping propel a benchmark indicator of U.S. corporate credit risk to its biggest jump in two weeks.

The Markit CDX North America Investment Grade Index Series 14 rose 2.4 basis points to a mid-price of 86.4 basis points as of 2:14 p.m. in New York, according to Markit Group Ltd. The index typically increases as investor confidence deteriorates and falls as it improves.

Swaps tied to Greece rose to 415 basis points today while those on Iceland traded at about 400 basis points, according to Markit data. The North American Markit index climbed the most since March 22 amid investor concern that contagion from a Greece default could spread to other assets, said Gavan Nolan, an analyst at Markit Group in London.

“The whole EU response to Greece has been quite fragmented,” Nolan said in a telephone interview.

Greece may default on its debt as early as this year without “extraordinary” financial assistance from the European Union and International Monetary Fund, said Stephen Jen at BlueGold Capital Management LLP.

The challenges facing Greece are similar to those that confronted Argentina, which defaulted on $95 billion of debt in 2001, said Jen, managing director at the hedge fund, in an interview today in London. Greece’s austerity measures to narrow the European Union’s biggest budget deficit by gross domestic product may drive the Mediterranean nation into a recession, he said.

“A default may be ultimately unavoidable,” he said.

Read moreGreece Credit Default Swaps Trade Higher Than Iceland’s for First Time

EUROPOL: New EU Gestapo Spies on Britons

… and and all other EU citizens.


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Europol: Millions of Britons face being snooped on by a new European agency

MILLIONS of Britons face being snooped on by a new European intelligence agency which has been handed frightening powers to pry into our lives.

Europol can access personal information on anyone – including their political opinions and sexual preferences – if it suspects, rightly or wrongly, that they may be involved in any “preparatory act” which could lead to criminal activity.

The vagueness of the Hague-based force’s remit sparked furious protests yesterday with critics warning that the EU snoopers threaten our right to free speech.

It is understood the agency will concentrate on anyone thought “xenophobic” or likely to commit a crime involving the environment, computers or motor vehicles.

This could include covert monitoring of people who deny the existence of climate change or speak out on controversial issues.

Paul Nuttall, chairman of the UK Independence Party, said: “I am horrified. We thought Gordon Brown’s Big Brother state was bad enough but at least we are going to kick him out in May. These guys we cannot sack until we leave the EU.”

James Welch, legal director of campaign group Liberty, said: “We have huge concerns that Europol appears to have been given powers to hold very sensitive information and to investigate matters that aren’t even crimes in this country. Any extension of police powers at any level needs to be properly debated and scrutinised.”

Until January 1, Europol was a police office funded by various states to help tackle international organised crime. But it has been reborn as the official criminal intelligence-gathering arm of the EU and Brussels has vastly increased its powers.

Read moreEUROPOL: New EU Gestapo Spies on Britons