You Can’t Make Up This Stuff
The Euro summit is apparently a complete disaster. No surprise. There’s just no way around the math.
The most recent estimate is that to get Greek debt to sustainable levels of 110 percent of GDP by 2020, it will be necessary for Greek bondholders to take a 60 percent haircut–but the Euro fin mins are still talking about 50. Always a day late and a few billion Euros short.
But 110 percent isn’t sustainable, really. Especially for a country with as feckless a tax system as Greece’s. 80 percent may be stretching it. So that gets us to approximately a 70 percent haircut.
These numbers threaten to consume the EFSF “in one gulp.” And that’s before getting to Portugal, not to mention Spain and Italy.
One minister recognizes reality:
So pointless was the gathering, that Didier Reynders, the Belgian finance minister, left early to attend the world premiere of the new Tintin film, The Secret of the Unicorn.
The Euros really need the secret of the unicorn. It may be their only hope.
Update. As Tim Worstall notes, the haircut the private debtors must take is larger because the others (like the ECB) cannot take haircuts.
It gets worse than 70% haircuts.
Much of current issuance is held by official bodies. The official bodies are fighting hard not to have to take a haircut. Which means that private holders will need to take an even larger one. Alphaville suggests (only suggests mind) that it might need to be 100%.
Comment by Tim Worstall — October 23, 2011 @ 4:40 am
Hi, Tim. Too funny. Saw your piece in Forbes before I saw your comment, and updated the post accordingly.
You mention Alphaville, which is very funny. At an ISDA event in NY in mid-September I was in a conversation with several bankers, inc. a senior guy at SocGen. We were talking about SWP, and one person asked me what financial blogs I read. Once I mentioned Alphaville and ZeroHedge the SocGen guy blew a gasket, started ranting about rumormongers and strode away in a very Gallic huff.
Excellent. This should truly cause havoc, and may well deepen the global depression.
And We know what happens in one of those!
We look forward to the world’s assets, not least the Russian energy sector, returning to their rightful owners.
And to think it would all have been impossible without the intellectual battles adainst financial regulation, won for Us by the Chicago School!
Comment by a — October 23, 2011 @ 8:38 am
10 to one the bank stocks rally – if they don’t I am going to be VERY pissed that many of my puts expired on Saturday!
Comment by Sotos — October 23, 2011 @ 10:40 am
More charming stuff from crazy Ekaterina aka Phobie:
http://dyingrussia.wordpress.com/2011/10/21/hilary-swank-is-an-evil-dangerous-whore/#more-4
Comment by Mr. X — October 23, 2011 @ 6:54 pm
She aint crazy, no more than any other prophet.
Comment by Sotos — October 24, 2011 @ 2:12 pm
Merkel really is the figurative fat lady.
Comment by pahoben — October 25, 2011 @ 11:08 am
Maybe she will choose Deutschland Uber Alles over the smoking corpse of the Euro.
Comment by pahoben — October 25, 2011 @ 11:45 am
That was in poor taste.
Zorba’s song would show sensitivity and demonstrate ongoing cultural solidarity between the EU member nations. It goes as follows-
Oh, it’s raining again
Oh no, my love’s at an end
Oh no, it’s raining again
And you know it’s hard to pretend
Oh no, it’s raining again
Too bad, I’m losing a friend
Oh no, it’s raining again
Oh, will my heart ever mend
You’re old enough some people say
To read the signs and walk away
It’s only time that heals the pain
And makes the sun come out again
It’s raining again
Oh no, my love’s at an end
Oh no, it’s raining again
Too bad, I’m losing a friend
C’mon you little fighter
No need to get up tighter
C’mon you little fighter
And get back up again
It’s raining again
Oh no, my love’s at an end
Oh no, it’s raining again
Too bad, I’m losing a friend
Oh, oh
C’mon you little fighter
No need to get up tighter
C’mon you little fighter
And get back up again
Oh, get back up again
Oh, fill your heart again
Comment by pahoben — October 25, 2011 @ 1:36 pm
@pahoben–more Zorba than Wagner, methinks.
She may sing Zorba but it looks like the Greek population will claim to hear Wagner. The apparent widespread sentiment in Greece is that Germany and others but particularly Germany owe them.
The telling stats for Greece are 750,000 government employees, 1.5 million private sector employees, 2 million pensioners, and 2 million self employed who vigorously evade taxes. These ain’t pretty numbers and so default blackmail becomes the easiest option.
Comment by pahoben — October 26, 2011 @ 9:24 am
@pahoben–a dear friend of mine and I have spent a considerable amount of time & pixels in the past weeks discussing the role that historical legacies–and historical guilt–are playing in all of this. Germans are under tremendous psychological stress. The legacy of two world wars weighs heavily on them. If they were looking out for their own interests, they would find a way out of the Euro. But so many Germans feel that they are not free to look out for their own interests, that they have to be Good Europeans to atone for past sins. But they resent this at the same time, because quite rightfully modern Germans believe that they are not personally responsible for past transgressions, no matter the enormity of those past actions. The Greeks–and the other Euros, particularly the French–are quite adept at playing on this.
So an important aspect of the dynamic is the argument Germans are having in their own heads about their identity. Can they be Germans again? Is it worth the cost of being Good Euros?
IMO there will come a point, and rather soon, that the Germans decide that everything south of the Alps is beyond hope, and will become Germans again.
Good analysis and I agree they will have to be Germans again-no way around it.
Can you imagine the results of a tax payer referendum throughout northern Europe in regards to further bailouts. It is hard to imagine that European tax payers will continue or even can continue to fund all the EU BS.
Comment by pahoben — October 26, 2011 @ 10:29 am
@pahoben–thanks. Re referendums. I can imagine. And so can the politicians. Which is exactly why there won’t be any.