Greek Bailout: Uncertainty Persists as New Sovereign Liabilities Surface

By John Ward

There are signs that Germany, the IMF and Washington retain their doubts about Greek ‘salvation’

Seemingly confident that the worst is behind him, Evangelo Venizelos strode into a PASOK Party conference this morning. A pensioner on crutches hurled a full yoghurt pot at the obese Finance Minister just before he got to the podium. Perhaps this was the old man’s way of trying to add a little culture to the occasion: either way, it was a timely reminder of the deep unpopularity of the austerity measures this shifty and widely hated man has driven through – by fair means and foul. 

But as he knows perfectly well inside his capacious and intelligent head, Venizelos has many an obstacle to overcome before standing any chance of becoming Prime Minister at the elections scheduled for late April. Not least of these is the fact that Pasok badly trails New Democracy in the opinion polls. But bigger still is what observers of the Greek predicament may yet learn…if the MSM gets off its backside and starts reporting reality, as opposed to fantasies put out by the Troikanauts and the Venizealots.

In yet another coup, the Tyler Durden column at Zero Hedge, today led with a piece from bestselling author Mark J Grant, pointing out all the other payments effectively triggered by the ISDA decision….and how, once the ratings agencies call default (as at least two of them assuredly will) these will explode, multiply and then get exponentially bigger and bigger via the madness of collateral agreements and default swaps – a process dubbed ‘acceleration’. So far, just one ropey bank – Austria’s KA Finanz – is known to be facing a $1.3bn payout that doesn’t seem to be there in its accounts, as such. But Grant argues that this is the tip of the iceberg…and chiefly, it’s the good ship Hellenic that’s heading straight for it:

‘….there are bank bonds, Hellenic Railway bonds, Urban Transportation bonds et al that are guaranteed by Greece. You will also note that there are bonds tied to Inflation, Floating Rate Notes, Asset-Backed securities and a whole mélange of other structured products with a Greek sovereign guarantee. What we all thought was fact [bailout] is now clearly fiction, and default will now bring “Acceleration” one could reasonably bet in all kinds of these securitizations and in all kinds of currencies.  This could come from the ratings agencies placing Greece in “Default” or it could come from the CDS contracts being triggered depending upon each indenture and you will also note that a great many of these off balance sheet securitizations are governed by English Law and not Greek Law. You may also wish to consider the fallout to the banking system as the lead managers of all of these deals could find themselves behind the eight ball as various clauses trigger and as the holders of these securitizations line up at the judicial bench….’

Sadly, he’s right. Wall Street, the White House, the Berlin FinMin and Wolfgang Strangelove know he’s right. But ordinary Europeans and Americans don’t, and that’s the problem. Under the calling of a default caused by not paying the full amount to the Greek bondholders and applying coercion, these additional liabilities become immediately due and payable at their principal amount together with accrued interest. What they all have in common is a frightening number of noughts following the bottom line numbers.

The funny-money is about to start seeping into the real money system.

Starting tomorrow, The Slog is will be running a series of pieces detailing the crazy assumptions, insolvencies, derivative obligations and – above all – endemic levels of corruption in the EU generally, and Greece in particular. It will feature leaked documents showing how deeply ingrained graft is in the privileged Greek elite; how German companies have cheated the Greeks and fed the graft by paying huge bribes and overcharging to an obscene degree; and how Evangelo Venizelos himself – both now and in the past – stands accused of cheating his people and protecting himself and the equally greedy members of his Establishment clique.

But that’s then, and this is now. In case you hadn’t noticed the Troika approving the Greek psi audit, neither have I. Most titles and sites are gaily contining to talk of the bailout as a done deal, but it is anything but. In the weekend absence of normal snouts in Brussels, I rang the ECB and got a rambling answer which achieved its objective of telling me nothing. “We have no reason to”, “There is no indication we know of that” and so forth – but no sign whatsoever “Yes we checked the numbers and they’re fine”. I suppose it would be logical to ask whether they’d tell us even if they did find some holes in there, but it would be nice to have a confirmation with which to hang those responsible later.

The ECB meanwhile has other sausages on its plate. Berlin has restarted its campaign of “assuring EU citizens” that Mario Draghi’s slush-money campaign for eurozone banks is now at an end. It’s a shrewd approach this one, forcing Draghi to either keep shtum, or have to say “Oh no it isn’t”. That would immediately start inflationary alarm bells ringing. But deep in his personal silo two miles beneath the German Finance Ministry, Wolfgang Schauble scoffs at such talk. He knows perfectly well that traditional printing-derived inflation like this, while irksome, is but a minor bee-sting compared to the cobra-bite of funny-money inflation heading our way. Yes, the Bankfurt Maulwurf has been on the line again.

“I think you could now say that Herr Schauble is somewhat depressed,” he told me this afternoon, “but continuing to pin his hopes on some kind of cleverly created and then formally controlled Greek default. He certainly does not wish anything like 130 billion euros to go to either Athens or the creditors. Meanwhile, we in the banking community have fallen back on prayer”.

To be fair to this bloke, he does have a sense of irony. And he steadfastly refuses to acknowledge the existence of any international attempt to push Greece into default. His agenda is a simple one: he thinks Merkel has delusions of grandeur that could easily wind up destroying the Bundesrepublik, and he’s very keen for anything that supports his view getting out into the open. He still, for example, refers to fiscal union as “a gun at Germany’s head”. But he never acknowledges any Washington influence. That would be bad form. What I still don’t have is any kind of audit (or even steer) on how representative he is of Bankfurt opinion. (If any German readers do, the discreet place for such information is, as always,

Over in America itself, Tim Geithner continues to be yes and no about the bond-swap psi ‘success’. “Over the last few months, the Europeans have done a much better job getting their arms around this and getting people more confidence around the world that they are going to contain the risk of crisis,” said the US Fed Treasurer, “but it is going to be a really difficult long road for them.” Especially for the Greeks eh, Tim?

Christine Lagarde at the IMF was equally circumspect. Note again here that not only has she drastically cut the IMF’s contribution to Greek bailout – to just €28 bn – she is being very careful not to commit:

“Today I have consulted with the IMF’s executive board and on that basis, as discussed with the Greek government, I intend to recommend a €28bn arrangement … to support Greece’s ambitious economic programme over the next four years,” she said.

I don’t think she has the slightest intention of ever giving that money to Athens. Once the other sovereign obligations start to surface, and the Greeks start to backslide on austerity, and the strikes get worse, and the economic data from Greece become more dire still, she will pull the plug…as indeed will the Troika as a whole. I don’t have an update for you tonight on whether those keen on ‘amputation now’ are in the ascendancy or not. It’s the weekend: most people have a life. It certainly would be nice to write articles about things other than the criminal rape of Greece (and its utter pointlessness) but there is more to play out on this yet.

Related: Did Venizelos employ bribery to get the psi level up to 85.8%?

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