Greek Deal: It Might Be ‘Agreed’ Today, But it Won’t Be Done

FEBRUARY 20, 2012 · 9:34 AM

The supposed Greek austerity/bondholder ‘package’ being agreed by the EU today is shot full of holes

If ever there was weaving to deceive, then that’s what we’ve been observing in both the US and EU handouts to the mainstream media over the last 24 hours.

Following  The Slog’s piece yesterday – in which a trusted senior source in New York confirmed a loose arrangement between Washington, Wall Street and at least Germany to nudge Greece inexorably towards default – all has been sweetness and light. To be more accurate, the EU began licking Greece all over late Saturday afternoon, but by Sunday evening even Schauble was giving seriously good tongue. And the word from Brussels is that wow, hey you’ll never guess, the austerity package will be agreed today. Then there will be a bond swap around March 8th – 11th (so the month required to set up the details suddenly ceases to exist), and then all will be well. The EU is, unbelievably – and most things they say now are unbelievable – about to throw a staggering 130 billion of our tax euros at a horse killed weeks ago by the very austerity programme it and the IMF demanded.

So is my New York highly-trusted informant full of it? Time will tell: a day is a long time in the EU. But to be fair, after the person spoke to me early evening Saturday EST, there’ve been a couple of genuine developments. And – something the MSM is gaily ignoring – the deal will trigger default insurances left right and centre anyway.

But let’s start with Wolfgang Munchau, whose piece in the London FT this morning supports the Slog line – as did Bruno Waterfield’s in the Telegraph yesterday. Munchau – as EU-integrationist as they come – wrote that ‘A senior German official has told me that his preference is to force Greece into an immediate default. I can therefore only make sense of Mr Schäuble’s proposal to postpone elections as a targeted provocation intended to illicit an extreme reaction from Athens’. Well said Herr Munchau, that’s exactly what it was. But now Schäuble is back in the bailout tent. Why?

Several reasons present themselves.

By far the most important is that, however many times the history re-writers deny this, last Friday the ECB subordinated the private Greek bondholders to do a separate (and better) deal for itself with Athens. In credit agency eyes, that spells ‘default’ with a capital D. And equally, overnight it has been confirmed that the private creditors who hold-out will be forced to take a 70% haircut – in short, their involvement isn’t voluntary. In credit agency eyes, that spells ‘default’ in 56pt bright-Dayglo capital letters. The minute Greece signs up to this deal in its current form, it is in default. (Which, as we know, is exactly what Dr Strangelove wants).

Second, from what I’ve seen or been told about the additional savings package being imposed on Greece (and they’re still arguing about it as I write) it contains a large number of potential deal-breakers before the 130 billion is actually handed over. My hunch is that Schäuble will use these to derail the process and keep his own plan on track. If a deal is announced today, then the MSM will of course all shout “Crisis Over!” in one Stepford tone. They will be wrong: default will only be avoided when the bailout cash goes into the Athens government’s bank account. Even  with an agreement today, this is not a done deal: riots alone over the next few weeks could blow it off course.

But there is a further development that just might, for once, have genuinely changed some minds during yesterday. This is that the IMF seems on the verge of using some other sucker’s money to revive the dead donkey. Maybe – just maybe – Washington and Berlin figure that they may get away with not handing any ‘real’ money over. I have my doubts about this, but let’s examine it a little.

Yesterday, Japanese Finance Minister Jun Azumi, after meetings with Chinese Vice Premier Wang Qishan and Finance Minister Xie Xuren, said the two countries were ready to offer support to the IMF – seeing how eurozone members now appear to be on the verge of forking out some of their own cash. Japan and China have agreed, it seems, that they will jointly respond to any funding request from the IMF for help with the eurozone crisis.

To grasp this fully, we need to understand one very important thing. Up until now, no ‘real’ national budgetary EU money has been handed over to Athens. So far it’s all been ‘leveraged’ – this year’s new word for ‘borrowed’. And it’s been borrowed in that notionally virtual manner that means whoever was dumb enough to give it to them will never get it back – which is a zero sum really, because the ‘money’ was never real in the first place.

The next €130 billion will be the real McCoy. The physical stuff…..removed from living budgets, and leaving various Ministers across the ezone feeling severely wounded about it. So any sign of it being replaced with money from elsewhere is obviously going to be a game-changer. It’s just possible that, as the Sino-Japanese cavalry appeared over the hill late Saturday, some minds got changed by the strong prospect of €600bn turning up.

This would mean that Asian officials gave an offstage guarantee of participation, and that strikes me – based on previous form – as highly unlikely. Wen Jiabao has said from Day One that he must see the colour of fangwoi money before he’d start piling in with some Yuan of his own. So come what may, this is going to cost ezone member States serious money.

And that’s where we are at 9.30 am Monday: another day of Debt Double-dealing – 18 hours of white flags and – perhaps – white smoke. But I remain firm in my belief that the intention of most people of influence is for Greece to default. I go back to what the Slog’s New York source told me yesterday:

“Look, if the ECB is protecting its backside, Berlin has no choice but to follow suit. If she [Merkel] pushes through and gets a deal on Monday, then it really will be proof that everyone in the EU is insane – including her. I just don’t buy that.”

Neither do I. It’s a calculated gamble, but I think that Draghi, Schauble, Washington and others have made smart moves designed to ensure the deal won’t go through: credit agencies crying default, bondholders screaming blue murder, Greeks burning down Evangelo Venizelos, Athens politicians refusing to take a poisoned pill – or some other trumped-up problem emerging today.

This yesterday from my original source:

‘There is so much fear and loathing now. Some people right at the top are quite clearly barking and have become totally unpredictable. So the sane voices who can do the math and understand reality are routinely being screamed at from all sides, but I do think it really is a very done deal on Greece now.’

He also reports that big hitters on Wall Street are heading for Lisbon this week. The pavanne continues.

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