Greece, PIIGS And The EURO Are Still A Problem For The US Economy

March 9th, 2012
in Gary's blogging, Special Post

The “Deal” is done for the first Greek bailout, but the 'Fat Lady' is just clearing her voice and the fallout hasn't even started. Enter stage right the “Experts”, politicians and pundits whom all have the answers the bulls are waiting to eagerly digest. Enter stage left the Druids of reality wearing black hats of fate, waving banners of impending calamity and the “End of the World” is near.

The center stage World Conflict of Fiance begins in earnest as realities start to settle in. This impending bloodbath is going to take its toll and only after the intermission will the true story start to unfold. An so we begin with the telegraph reporting today.

@telegraph: Fitch Ratings has downgraded Greece to "restricted default", citing previous commentary that debt swap would constitute a sovereign credit event.”

Mohamed El-Erian, chief of PIMCO, has told Bloomberg TV that "Greece and Portugal are insolvent; Spain and Italy are different. He adds that markets are pricing in another Greek PSI some time in the future.”

“Bloomberg reports that finance ministers in the eurozone have released €35.5bn of aid for Greece and backed the debt swap with private creditors, including the use of collective action clauses. Jean-Claude Juncker, head of the group of euro-region finance chiefs, said: “The necessary conditions are in place to launch the relevant national procedures required for the final approval of the euro area’s contribution to the financing of a second Greek rescue package.

"The Eurogroup was encouraged by the high private sector participation in Greece's debt exchange offer, which will make a significant contribution to improve Greece's debt sustainability. In this context, the Eurogroup was informed that Greece will activate the Collective Action Clauses applicable to bonds governed by Greek law."

Wolfgang Schaeuble, the German finance minister, says the ISDA decison of Greek CDS won't affect aid. He has also ruled out another restructuring like Greece, which will be worrying for Portugal, Italy and Spain.

Hitting out at Greece, Schaeuble says the country shouldn't blame the EU or Germany as it can't expect others to help it, it needs deep structural reforms.

However, Raoul Ruparel, Open Europe’s Head of Economic Research, disagrees:

With the use of CACs Greece has entered a coercive restructuring or default – something which Greece and the eurozone have spent two years trying to avoid. While the financial markets can handle the triggering of CDS that this will entail, at some point serious questions need to be asked over the amount of time and money which policymakers have wasted on what has ultimately amounted to a failed policy. Instead, Greece should have undergone a full restructuring combined with a series of pro-growth measures... This deal could end up being a pyrrhic victory: the debt relief for Greece is far too small which means that another default could be around the corner, while the austerity targets are wholly unrealistic and kill off growth prospects.”

Gold has fallen even further because of international unrest with silver not far behind. We will continue to deal with Europe’s never ending debt saga along with our own. Goldman announcing further Q1 disappointments to 1.8% and now recessionary oil prices threatening to hinder what growth the US economy has gained. Iran is still here saber rattling keeping oil up so they have something to barter with. The Draconian has some thoughts on oil and gas prices.

What's Behind those Higher Gas Prices

“ Prices are high right now because of Iran.  It's 100% political headline risk.  If that situation over there stabilizes, you could see oil prices fall dramatically over a window of a month or two.  Commodity prices can fall a lot faster than they can go up.  This could be the kind of scenario where you're paying $4.75/gallon in June but $3.50/gallon by August. “

News is soggy warm at best and reality isn't good either.


• Eurozone releases €35.5bn of aid for Greece
• UK GDP grew 0.1pc in past three months, says NIESR
• IMF's Lagarde: risk of acute crisis removed for now
• Greece: 85.8pc of bondholders support debt swap
• After CACs are enforced, participation rises to 95.7pc
• Euro slips on fear of CDS payouts of $3.2bn
Legal skull-duggery in Greece may doom Portugal

• ECB to accept Greek government bonds as collateral
• Greek unemployment rate at record high of 21pc
• ECB cuts eurozone growth forecasts


It isn't over as many would like you to believe until its over. The Greek saga still rolls on and then it is the other PIIGS to come front and center maybe next week.


Why March 23rd is a Good Date for a Greek Bankruptcy, and What Can Prevent It

If European leaders continue dragging their feet, Friday, March 23rd could be the day that Greece declares bankruptcy.

Here is why, and what actions can be made to kick the can further down the never ending road and prevent such an announcement.

Read the rest of the article Why March 23rd is a Good Date for a Greek Bankruptcy, and What Can Prevent It


And the day after on the 29th. The Spanish Unions are trying to sink their boat.


(Reuters) - Spanish unions voted for a March 29 general strike on Friday after failing to reach a compromise with the government on a labour reform which makes it easier to fire workers and more difficult to implement inflation-linked salary hikes.

The reform is part of the centre-right government's measures to breathe life back into an economy that is probably already in recession and to encourage hiring in a country with an unemployment rate of 23 percent.


What are the problems for Greek and Spanish reform and just why we may not see it anytime soon. This following article could apply to ANY of the debt strapped Nations in the PIIGS Republic.


Greece And The Probability Of Reform by William Gamble

The usual suspect that stands in the way of reform is the government itself. All governments come equipped with large bureaucracies tasked with running the country.

. . . bureaucracies are a perennial dumping ground for patronage. This is especially true for relationship based system where favors are the basic currency. The result is that neither the institutions themselves nor the politicians who are nominally in control of them will help either encourage or enforce reform.

Greece is an excellent example. Although the Greek private sector has lost about 500,000 jobs, almost 5% of the total population, the government has lost only 1,000.

The bureaucrats not only increase the cost of the state, they prevent reform by diligently enforcing needless regulations. The burden of regulations usually falls on the more vibrant sectors of the economy, small entrepreneurs.

There are questions all over the world as to whether creditors especially banks and bond holders are ever going to get paid back. This is a serious problem not only in Europe, but in places where you might not consider like China. The only real way that these places can grow is through structural reform, which is far more improbable than most of the experts now expect.”



And lastly, from Zerohedge. We will hear similar reports for Spain and Portugal soon.

The Bad News Begins: Greek Q4 GDP Slide Revised Downward From -7.0% To -7.5%

“Not even 6 hours after the PSI exchange offer details, and already the true Greek problem rears its head.”

If the EURO crashes as some said it will, that can’t be a good sign of any recovery hope in the Eurozone. Here Michael explains the FX side of things.



NFPs Spark Massive USD Rally- Euro Plummets On Greek CDS Risk By Michael Boutros, Currency Strategist

The US exposure to Europe's financial woes are real, very real and will continue to weaken further the instability that continues to threaten the US markets.

Where is a good Mediterranean sunset when you need one? Waiter, I'll have one of those European “Hopium's” please. (Maybe if I close my eyes it will all go away!)

Written by Gary

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