The latest rumor is the EU and IMF are demanding 50% haircuts or they will not proceed. Bear in mind, they released the latest tranche of aid to Greece today even though Greece missed all required targets.
Instead of talking about a Greek recovery in 2012-1013 the timeline is now stretched out to 2020.
The Vancouver Sun reports Banks must take ‘at least 50-pct’ loss for Greek rescue
Europe and the IMF will only proceed with their planned second Greek bailout if banks accept a “haircut” of “at least 50 percent,” diplomatic sources said Friday.
Banks would need to take a 60-percent “haircut” on Greek debt to keep “official funding” at the level presently planned, the report seen by AFP concludes, with the “worst-case” scenario outlined by auditors envisaging 440 billion euros in future bailout funds.
An EU diplomatic source told AFP after their discussions broke up overnight that the conclusions drawn from the talks were that “a minimum of 50 percent Private-Sector Involvement is needed” to go ahead.
The source said that approval by the International Monetary Fund, and therefore EU, on plans aimed at containing contagion threatening the rest of the eurozone, and keeping Greece in the currency area long-term, “is only possible if there is clarity on the second programme,” — that it crosses that 50-percent threshhold.
Another diplomatic source conceded that getting the second bailout back on track would now require movement both from eurozone partners and the banks.
Bailout partners, who gave their green light earlier on Friday to the release of 8 billion euros in blocked loans from the May 2010 first bailout for Greece worth 110 billion euros, pending agreement from the IMF, could still be required to offer “more concessional official sector financing terms,” the conclusions said.
Working on the worst-case assumptions, “the time required to get back to market could be significant, generating a potential need for additional official financing ranging up to 440 billion euros.”
Worst Case Scenario
Note that the worst case scenario, and we are talking just about Greece (not Italy, not Spain, Portugal), would consume the entire 440 billion euro EFSF.
I am tired of rumors, lies, manipulations, and magic. However, rumors, lies, manipulations, and magic are all that’s driving the markets.
Whatever haircut is agreed upon (and 90% is what is needed but that will not happen), note that EU is shooting for a mere 50% agreement from the bondholders. Rest assured the EU will label the actions “voluntary”.
Regardless what the EU says, there is a very good chance the rating agencies will correctly label the action involuntary, thus triggering CDS payouts.
There should be a 100% chance the rating agencies will label the haircuts involuntary, but don’t count on it.
Indeed, the only thing one can count on are more rumors, lies, manipulations, and magic proposals. Eventually the market will spit in the face of such proposals but unfortunately I cannot tell you when, nor can anyone else.
Mike “Mish” Shedlock
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