It’s difficult keeping up with the news. As soon as I finished Germany’s “Time Pressure” Thesis; Noose Tightens on Europe, significant news on the debt standoff hit the press.

ECB Cancels Acceptance of Greek Bonds as Collateral

An ECB press release today discusses Eligibility of Greek bonds used as collateral in Eurosystem monetary policy operations.

In a nutshell, the ECB unexpectedly and suddenly canceled acceptance of Greek bonds as collateral for liquidity funding unless Greece honors the existing deal.

Until that happens, the Greek central bank, not the ECB, will have to take care of liquidity needs related to runs on Greek banks.

The ECB press release states the situation with little fanfare as follows: “The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules.

Brass Knuckles

Reuters reports ECB Cancels Soft Treatment of Greek Debt in Warning to Athens.

The title is silly. When did the ECB ever provide Greece with a “Soft Treatment“? 

As I have pointed out, the much abused word “solidarity” has come to mean “Do what we say, or else!

ECB vs. Novices

Prior to starting this post, I added an addendum to Germany’s “Time Pressure” Thesis; Noose Tightens on Europe.


A Bloomberg View on “Greece’s Hidden Haircut Proposal” just came my way: “By the time the EU is done with the Syriza novices, Greece’s debt may be a little lower, but the government’s radicalism will be a tattered banner,” says author Leonid Bershidsky.

Bershidsky is another in a long line of persons who do not understand simple math. Time will tell who is waving the “tattered banner” over what can and cannot be paid back. My bet, one way or another, is on the alleged “novices“.

Who is the Novice?

One way or another, there is going to be a major haircut. Here are the choices.

  1. An adult meeting of minds takes place as to what can or cannot be paid back.
  2. Parties agree to yet another can-kicking exercise that prolongs the agony at increasing expense down the road.
  3. Greece suddenly defaults with massive repercussions now instead of later.

Like it or not, there are no other choices. Normally, one would expect option number 2. That is what bureaucrats most often do.

However, it’s increasingly likely that both Syriza and Germany have both had enough. German citizens support the “no-haircut thesis” by a 68%-28% margin.

Admission of Obvious Truth

Meanwhile, in a interview today on Zeit Online, Greek finance minister Yanis Varoufakis accepts the obvious truth: “I’m the Finance Minister of a Bankrupt Country”

Please read the interview.

Also read Alexis Tsipras “Open Letter” to German Citizens Regarding Extend-and-Pretend Unserviceable Debt.

Varoufakis and Tsipras are political novices, but both seem to be masters of game theory, and both know full well (and are willing to admit) Greece is bankrupt.

The honest admission, “Greece is bankrupt” should take them down the correct path, that extend-and-pretend is precisely the wrong thing to do.

Spreading the Pain

It’s painful for any politician to say “we are bankrupt“. Yet that admission paves the way for other things.

For the sake of Greece, I actually hope Syriza keep its pledge to negotiate a debt reduction.

Then, if the ECB and Germany do not bend, history will eventually show them to be the novices, not Greece.

Exit Math

I wrote about exit math twice recently.

If Germany and the eurozone do not bend significantly, Greece may very well come to the conclusion it has little to lose and everything to gain in the long haul by telling the Troika to go to hell.

One Step Closer to Solution

My math says Grexit will be painful for Greece, but it will be far more painful for Germany.

There is much merit regarding a global debt solution in proving that statement, even if Greece does not properly take advantage of the opportunities Grexit would provide.

Meanwhile, I repeat my January 9 warning once again: Another Run on Greek Banks Begins; Get Out While You Still Can; Buy Gold

Mike “Mish” Shedlock