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European Sovereign Debt Crisis: Debt Saturday in Greek letters ()


In terms of the EUR USD rate, we agree with and have expressed here that the Euro may well trac down to 1.19 ( Stopler says 1.20 in his summary, he means the same resistance level) before the Euro moves back up. We made the forecast in the days when Euro survival was seemingly a game for the blogs and the investors in US markets. Morgan Stanley view you like? Tread carefully..apparently there;s not much left (Collateral, QE)  to go around..and the Feb drawdown from the ECB may also get delayed

Greece gets closer to the deadline for a settlement of its $130 bln debt rollover plans currently stuck at Private investors led by IIF (Ackerman, DB, Charles Dallara) not ready to go beyond 50% haircut with a coupon of less than 4%, NPV of the debt reducing by more than 65-70% . Greece’s agreement to the current deal might still keep increasing the debt on its books and it iprobably needs to work off the Saturday to come back where GDP cuts of 6 and 2% in ’12 and ’13 give it the advantage of a reducing debt / GDP ratio as well.

Italy is trying ‘hard’ reforms in the meantime incl calling no. of Licences for Taxis in each city to review, opening 5000 pharmacies as a taste of derregulation in such occupations and raising cash from the sale of petro company Eni sPA.

The parties are near an initial agreement under which old bonds would be swapped for new 30-year securities carrying a coupon that would begin at 3.1 percent, reach 3.9 percent and go as high as 4.75 percent a weekend deal looking lie going through It is not clear if the Troika’s EUR 44 bln ECB/ EUR 22 bln IMF would be subject to new covenants with the IIF investors in the PSI


Greek debt discussions collapsed Friday when the haircut of 50% at a coupon lower than 4% was apparently not enough for IIF ( The maturities for the bonds replacing the maturing bonds are also not agreed) and a clamouring expressed mainly in the UK media like the Independent , arose such that apart from the CACs introduced by the Greek government to encourage group agreement next time, ECB which is being asked to take the same haircut as the investors but had not done so in the proposals signed and up to December, may have become the stumbling block to the final deal. However that would be extreme as ECB is already accepting the new bonds and other bondholders cannot make such contingent requests.

Greece would prefer to default and not pay anyone than end up with increasing ratio of Debt to GDP or even increasing Debt totals in some scenario. It has however shown agreement to include increasing coupons based on GDP growth as sweeteners, but that deal was not done on Friday.

However the IIF did report last Friday after the downgrades(13/1) that no “Constructive, consolidated response by all parties” was available and a week later a coupon below 4% had seemingly become more acceptable but deals fell apart yesterday or so it seems. However, Hans Humes of Greylock Capital Management as member of creditor committee expressed optimism yesterday on deal closure.(B’berg)

Greece is also feeling the pressure on banning Iranian imports as it has signed favorable terms with Iran and the EU embargo likely to come over the weekend, may well break the camel’s back. If the default occurs because there was no agreement hedge funds holding the Greek debt for cents ( 65-70% yield)  may well benefit from the CDS payouts due.

Greece wants the EUR 300 bln debt to come to 120% of GDP by 2020 and the current haircuts impact around EUR 200 bln of debt in face value. The MD of the Institute of Intl Finance, Charles Dallara expected to speak to the press during the Friday night session in Athens for the negotiators

WSJ’s overview may also work for you here

Private investor participation for the voluntary rollover has inched up from the 50% mark last week. Another of the 32 creditors on the committee, Marathon Capital CEO Bruce Richards said tuesday that he expected investors to receive 32 cents for the Dollar in the agreement  incl NPV of bonds. Then the coupon expected was above 4%, and on Friday going into the meeting Greece expected to push for an agreement below 4% . However 90% of the investors need to agree to the “Voluntary” rollover to avoid the default event. The Troika of ECB, IMF and the European Commission is however not yet looking at participation in the deal for private investors, requiring 100% voluntary participation from private investors for Greece

(B’berg) The creditors’ steering committee negotiating the debt swap includes representatives from banks and insurers with the largest holdings of Greek government bonds, including National Bank of Greece SA (ETE)BNP Paribas (BNP) SA, Commerzbank AG (CBK)Deutsche Bank AG (DBK)Intesa Sanpaolo SpA (ISP)ING Groep NV (INGA)Allianz SE (ALV) and Axa SA. (CS)

Financial firms on the IIF’s private-creditor investor committee, a larger group of 32 membersthat includes the smaller steering committee, hold more than 47 billion euros in Greek sovereign debt, according to data compiled by Bloomberg from company reports.

The voluntary rollover creates an unnerving precedent in the CDS market raising hopes of no payouts ever from writers of the CDS, but hedge funds are unlikely to let go without their pound of flesh in case there is a lack of voluntary participation  The 32 private creditors in the IIF hold $47 bln of Greek PSI according to (B’berg)

Here is the deal going around since October which is yet to happen, and how it just adds back to Greek Debt, the assumptions have become tighter since then. Bans have been selling the GGB + CDS basis to Hedge funds even at these rock bottom levels to avoid making the choice( rising to 94 since the deal signing. Hedge funds hold $80 bln of the $200bln according to The Independent

Italy vs Greece

Even with the deal Greece has set on a different course correction,  Italy’s reforms though looking trivial a big motivator for the South esp as Italians have many more occupations under regulation and even the addition of 5000 Pharmacies in the first instance or re evaluation of no. of Taxi licences in each city a herculean effort for Mario Monti’s government with salutory strikes going up. In htis phase the government expects to keep new Caps in place and compensate current license holders for issuing any new licenses for these occupations and still gain popularity within and outside the South.

The three southern governments under fire are all signed up with Iran for imports and will also suffer once the EU embargo is announced by the committee of Foreign Ministers. Agreements between Iran and Greece include a payment free First 60 days after delivery for Greece.

Bloggers in the south expect the Italian reforms to rub on to Sarkozy’s ( or whichever comes in place after the elections) as well. Try this read from FT

The reforms in Italy – Grow Italy, Save Italy

Last Friday’s Bond Auctions in Italy went off well with the three year yield below 5% but not as well as Spain’s auctions where despite a low Bid Cover ratio ( read low interest among buyers ) the yields hit rock bottom

Italian Prime Minister, Mario Monti, announced sweeping austerity measures and reforms which have bolstered confidence in Italian sovereign debt markets. Monti’s plan includes tax increases, government spending cuts, pension savings and raising the retirement age.(Crackerjack)

These plans were approved by EU policy makers in December when 10 year bonds dipped to a yield of 6%. However the reforms will take their time from the enunciation of the first Phase when more taxis and pharmacies will be allowed and Eni SPA put up for sale. Also minimum fees for professional offices have been reduced an dprocedures to start new companies simplified. Petrol stations  can buy from more than one source, and Public transport   The liberalisations have again been passed as a decree by Mario Monti’s special dispensation and need to be passed by parliament in the next 60 days. Sicily’s farmers and Rome taxi drivers will be on strike on Monday against this reform package announced as (“Grow Italy”)

Save Italy refers to The EUR 30 bln in tax hikes, pensions and spending cuts as promised in the Dec 4 Bill(Save Italy), will have to wait to impact the Italian budget expected to balance next year (2013) with only a 2.2% cut in GDP this year and only 0.6% next. Italy aims to reduce Italy’s 120% debt to manageable levels, the EU ceiling is at 60%

This is the original list ( what I could get from Reu.trs ) Rather than the first three heads, what has been implemented now is the small list at the bottom (CASH, LIBERALISATIONS) part of Grow Italy ( thru reforms)


* Introduction of a modified version of a property tax that will bring in two-thirds — or more than 10 billion — of the total new taxes, Deputy Economy Minister Vittorio Grilli said when the package was presented.

* Taxes will be increased on luxury assets like boats longer than 10 m (30 ft), private aeroplanes and sports cars.

* There will be a 2-percentage-point hike in value added tax rates from September of next year “only if it’s necessary,” according to a statement from the prime minister’s office. It was unclear if this measure would apply to all three VAT rates, which currently stand at 4 percent, 10 percent and 21 percent.

* A 1.5 percent, one-off tax on the money brought back to Italy with the so-called “tax shield” that gave amnesty to tax evaders who brought their foreign stashes back to Italy, which was passed by ex-Premier Silvio Berlusconi’s government.

* A tax on bank accounts, stocks, and financial instruments will be introduced. Italy is in favour of a German and French plan to tax financial transactions, Monti said.


* The government said it would abolish a “series” of public agencies.

* Elected officials in provincial governments will no longer receive salaries, and councillors would be reduced to 10, while the total staff would be about halved.


* From the start of 2012 pensions will be calculated only on the basis of contributions paid into the system, rather than on end-of-career salaries.

* The annual inflation adjustment on pensions will be eliminated for those who collect monthly retirement checks of more than 936 euros, while it will remain for those who collect smaller amounts.

* The minimum number of contribution years will rise to 42 years for men and 41 years for women, from 40 years at present for so-called seniority pensions, which are calculated as a mix of age and the number of years of paid contributions.

* The minimum retirement age for women’s seniority pensions was raised to 62, from 60 currently, with financial incentives to try to keep them working until 70. Men’s minimum retirement age will rise to 66, with incentives to work until 70.

* For women in the private sector, access to so-called “old-age” pensions will be accelerated. It will slowly be increased to 66 by 2018 from 60 today. Next year women in the private sector will need to be 62, instead of 60, to be eligible for a old age pensions, which doesn’t take into account the number years worked, and men 66 instead of 65.


* A ban on cash transactions above 1,000 euros, which is lower than the current 2,500-euro threshhold.

* The use of electronic payment methods in the public administration.

* Tax breaks for small companies and artisans who declare their income.


* Antitrust powers are increased.

* Shops will be allowed to have more flexible opening hours.

* Pharmacies will lose some of their exclusive privileges for the sale of non-prescription drugs.

* Rules on the transport sector will be loosened. Newspapers speculated that petrol distributors would be able to buy from various sources, instead of only from one.



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This entry was posted on January 21, 2012 by in Amitonomics, Banking, Europe, European Sovereign Debt crisis, Global.


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