The European leaders are still far from agreeing on a solution to the situation in Greece. In a very clear letter to the ECB, the German finance minister insisted that the private sector must participate in sharing the Greek burden.
Such a restructuring is rejected by the ECB and is widely considered as a default. The deadlines, also clearly written in the letter, show that time is running out.
Germany’s finance minister was very clear in stating what solution is needed: a “prolongation of the outstanding Greek sovereign bonds by seven years” – restructuring. Rating agencies see this as a default, triggering the infamous Credit Default Swaps.
How much time is left? Wolfgang Schaeuble gives 12 days to reach an agreement:
While I am aware that there is still some ongoing discussion regarding the involvement of the private sector, I am confident that this can be resolved in a constructive way before our 20 June meeting.
And when will it be too late: mid July:
At the same time, without another disbursement of funds before mid-July, we face the real risk fo the first unorderly default within the euro zone.
European Banks in Trouble
All the ECB speakers have rejected any kind of restructuring again and again. In the meantime, Germany says it hasn’t received the EU / ECB / IMF troika report on Greece. How long can they delay the obvious report that the situation in Greece is terrible?
Even without a default, the European banks need a lot of cash. Independent Credit View, that foresaw the troubles of Irish banks when the official stress tests said that they were OK, estimates that the 33 largest European banks need $347 billion in additional capital by 2012.
And no, that doesn’t include a possibility of a sovereign default or restructuring which is getting closer:
Time is running out:
- Greeks are already grabbing their money from the banks, fearing that the banks will freeze.
- One German bank already acknowledged a Greek haircut – some people are more prepared than others.
- More signs that the endgame nears in Greece – that’s a 50% chance of a default from a rating agency – they are usually late.
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