Rabu, 28 Maret 2012

Fantasy firewalls that only if not used . Foreign law Greek bondholders not going along with the program so far

Greece fails to get quorum among Swiss bondholders

Greece failed to get a quorum of investors at a meeting to agree a 68.5 percent reduction in the value of one of its international bonds on Wednesday.
Holders of 66 percent of the nation’s 650 million Swiss francs of 2.125 percent bonds due 2013 had to attend the meeting to form a quorum, according to the statement calling the meeting.
No quorum was present and a resolution that would have cut principal to 31.5 cents on the franc and extended their maturity was not approved, according to a notice on the SIX Swiss Exchange website.
A bondholder meeting is typically reconvened if a quorum isn’t present at a meeting called to restructure a bond.
If a quorum is not present at a second meeting, Greece may face the choice of paying the coupon when interest is due in July, or of failing to pay and risking triggering cross-default clauses in other debt securities.

and similarly note other foreign law Greek bondholders rejecting the sweet deal offered to them....


2. BONDHOLDERS REJECT LOSSES Only two bondholder groups out of a dozen that voted on foreign-law Greek bonds included in a debt-swap plan have decided to enforce the exchange on holdouts, Public Debt Management Agency data showed on Thursday. Five assemblies did not reach the required quorum and another five voted against forcing losses with so-called collective action clauses. These votes, held at bondholders' meetings on March 27 on bonds issued by Hellenic Railways (OSE) and Greek other public transport companies. More bondholders' meetings have yet to take place.

and a whole lot of nothing regarding the firewall - so to speak.....

EU - EFSF & ESM - A Whole Lot Of Nothing

Tyler Durden's picture

Via Peter Tchir of TF Market Advisors,

A quick look at the headlines:

€200 billion already committed.  So the EFSF has already committed €200 billion.  So far I only see €63 billion of debt issued by the EFSF, so they have at least another €137 billion to fund.  The bulk of their issuance so far is back to back with a they made to Greece, hardly the best collateral.  For now I’m going to assume that there is no overcollateralization requirement and just €200 billion has been committed, but if the 165% overcollateralization is in place, then that would really be €300 billion of “guarantees” used up.

The “Permanent” facility would be allowed to run in conjunction with the EFSF.  As far as I can tell, basically each and every country would need to approve this.  Most countries seemed to have only approved a maximum amount of support that could be allocated between the EFSF and ESM.  Will they really all sign on for more?  I find it hard to believe that Finland will be excited by the prospect since they already negotiated their way out of standard EFSF and into some form of collateralized lending.  Slovenia had enough trouble the first time around, so why would they want to?  Cypress seems to be getting dragged down by the Greek economy.  Poor little Estonia must be wondering when the Eurovision song contest got all mixed up with this Eurozone concept.
For now, let’s assume that every country approves running the ESM in conjunction with what has already been committed (I find it hard to believe that everyone will agree, but let’s just make it easy for now).  Then the EU has €500 billion of new money to play with – allegedly.  It has all become such a blur, but the ESM had the same concept of “stepping out” members and potential overcollateralization that I am not sure that €500 billion is achievable.  I think it is only a headline, but again, let’s pretend they can get to €500 billion.
Okay, let’s make a capital call for the full amount.  I will assume it is based on the same percentages as EFSF with the 3 stepping out members.  Italy, please pay €96 billion.  Spain, we need €64 billion from you.  Where exactly are Spain and Italy going to get that sort of money to pre-fund the deal?  They aren’t.  That is the big scam here again.  It is “self-insurance”.  The vehicle will not be pre-funded in a meaningful way since the countries don’t have the money to put up.  There may be some amount of paid-in capital, but it will be small.  Then the ESM, just like the EFSF (which may still need to issue €137 billion) will issue bonds whenever it needs money, and only use the “capital calls” in extreme circumstances.  This is actually far worse than having the money up front – as problematic as that may be, because this plan will shift virtually the entire burden to Germany and France if it ever gets used.

Let’s say that Spain finally decides it needs money and actually “steps” out.  When each of Greece, Portugal, and Ireland used the EFSF facility for money, they “stepped” out.  That is both reasonable and logical.  But what does that mean to France and Germany?  With Spain participating, they had to put up €145 billion and €109 billion respectively.  If just Spain steps out when they need money, the contribution rates for the other countries goes up.  Now Germany, France, and Italy are on the hook for €167 billion, €125 billion, and €110 billion.   Let’s now assume that when push comes to shove the Finns and all the small contributors decide to “step out” too.  The problem is getting too big and they realize they are just hurting themselves more by participating than they would be affected by actual defaults.

Then the big 3 go up to €175 billion, €132 billion, and €116 billion.  Also Belgium, not the best credit to begin with needs to cough up €22 billion.  Are they really going to be there for that money when called upon?  Getting paid in capital is problematic, and may even actually count against deficits, but not getting paid in capital is more dangerous.  You are counting the commitments of people who need the money.  It is like me getting a loan from the bank and trying to make them more comfortable by telling them, not only will I co-sign my own loan, but I will give them a guarantee that I will pay it back.

Nothing has changed.  These are the same people who constantly try to overwhelm current problems with huge headlines and promises of a better future.  They don’t have the money, and never will.  They also promised speculators in Greece would lose their shirts.

Maybe they can get the paid in capital by having LTRO3.  Spanish banks can issue bonds to themselves.  They can get Spain to guarantee those bonds.  They can then pledge the bonds to the ECB.  Then they can take that money and buy Spanish government bonds.  Spain can use that money to fund their share of ESM.  Then they can get ESM to give them more money, partly coming from other countries.

And yes, the IMF is our money and if they fall for this, it is just shameful.

I have ignored the other potential bit of money, where “if in an emergency” and only for up to 1 year, could residual EFSF money be used.  All the same problems as getting money from the ESM when Spain or Italy needs it, coupled with actual votes.  Not worth including in your calculations, in spite of how quickly the media has rushed to get the bigger headline out.

We need to see the details, but be prepared to be underwhelmed.

and more of the same....


More Money for the Euro Rescue

Onward, to the Next Red Line!

Chancellor Merkel, right, talks with Finance Minister Schäuble in the Bundestag.Zoom
Chancellor Merkel, right, talks with Finance Minister Schäuble in the Bundestag.
The euro bailout funds will be enlarged, and Germany's guarantees will rise further as a result. Once again, Berlin has exceeded its own self-imposed limit in crisis talks. Coalition members are grumbling, but seem to have lost the will to fight. Finance Minister Schäuble has promised this will be the last concession, but experience indicates otherwise.
Drawing red lines in the euro crisis is tricky. Many limits have been set in the last months and years: Greece wasn't supposed to get a cent; Germany wasn't going to pay off other nations' debts; the European Central Bank didn't plan on buying junk bonds and on it went. But many of these red lines were later crossed, obliterated, perforated or otherwise forgotten.
Now yet another red line has been overstepped. Contrary to initial assertions, the euro-zone bailout fund will be effectively increased, and with it the formerly untouchable German contribution of €211 billion. Coalition leaders in Berlin are trying to play down the move. Overall, the risk has fallen, says Volker Kauder, parliamentary group leader for the conservative Christian Democrats (CDU). It may not look that way on paper, but somehow it's factually true, he says. Meanwhile Chancellor Angela Merkel reportedly emphasized the psychological benefits of the increase when she addressed her conservatives at a parliamentary group meeting on Tuesday afternoon.
Not everyone among the party ranks is convinced, though the grumbling is going on behind closed doors. Even the notorious euro bailout rebels seem weary of the vain struggle against the ever-escalating bailout billions and risks. But resistance has so far failed to materialize. Only CDU parliamentarians Klaus-Peter Willsch and Manfred Kolbe, already known as frequent challengers of the chancellor's euro policies, spoke out at Tuesday's meeting, saying the risks had become incalculable.
In the end, Finance Minister Wolfgang Schäuble managed to get the parliamentary group to grant him broad authority to support the temporary co-existence of the European Financial Stability Facility (EFSF) and its successor, the permanent European Stability Mechanism (ESM), at a meeting with his European counterparts in Copenhagen on Friday. Just four parliamentarians refused to pledge their allegiance to the plan. Euro rebel Peter Gauweiler, a member of the CDU's Bavarian sister party, the Christian Social Union (CSU), was not present at the meeting. Merkel's junior coalition partners, the pro-business Free Democrats (FDP), didn't hold a vote, but reports indicated that they were also largely in agreement.
A Sense of Resignation

Merkel only recently signalled her willingness to combine the remaining funds of the EFSF with the permanent ESM. With this she had finally bowed to international pressure to strengthen the firewall against the expansion of the euro crisis. The upper limit of €500 billion in credit for the ESM will remain the same, according to these plans. But the ESM would also be topped up with some €190 billion from the EFSF that was already earmarked to aid Ireland, Portugal and Greece. Originally, that money was to have been included in calculations of the ESM's size, but this way the maximum firepower to rescue debt-stricken countries will be increased.
Additionally, the remaining unused EFSF funding of some €240 billion would remain as an emergency reserve until the permanent ESM reaches its full capacity in mid-2013. Initially, its firepower will only be about €200 billion. But according to participants in the parliamentary group meeting, Schäuble said that new aid programs would mainly be funded by the ESM. The ESM could quickly reach its limit within the first year if Spain or Italy are forced to ask for help.
The question of whether this new arrangement increases risks to taxpayers was left unanswered by Schäuble at the meeting. But it will be hard to avoid a higher German liability limit. Currently sums of between €230 billion and €280 billion are in circulation -- well above the €211 billion that had been considered the absolute maximum. The EFSF credit for Ireland, Portugal and Greece will run for 25 years on average, with Germany liable for some €58 billion. This will certainly be added to Germany's ESM guarantees.
Still, the critical inquiries from the conservative parliamentary group were limited on Tuesday. "Yet another U-turn," groaned one MP ahead of the meeting. "But what can you do?" Inside he remained silent like most other participants. The chancellor reportedly assured the group that they would definitely be able to vote on increasing the euro firewall in the Bundestag.
Schäuble Planning Tough Talk in Copenhagen
Parliament was expected to vote on the ESM in late May in a bill that will also include legislation on Merkel's fiscal pact, which obliges 25 member states to greater fiscal discipline.
But on Tuesday the opposition, whose support Merkel will need in the vote, insisted on more time to negotiate, saying the fiscal pact must include measures for boosting growth in crisis-hit nations.
Merkel praised the euro firewall increase as "the final step down a logical path," but some conservatives doubt whether this milestone has truly been reached. On Tuesday the Organization for Economic Cooperation and Development (OECD) said the euro bailout package should be increased to at least €1 trillion to help the currency union return to economic health. The European Commission would also like more concessions from Germany, preferring for the ESM and EFSF to both run parallel at full strength, through which their volume would increase to some €940 billion. The best option, in their view, would be the transfer of EFSF funds to the ESM -- which would cause Germany's responsibility to explode, reaching a volume of some €400 billion. "That wouldn't be communicable," a coalition source says.
Schäuble has thus assured the CDU parliamentarians that he will resist these demands. The finance minister will try to "beat the nonsense out of the minds" of his counterparts in Copenhagen, a participant at Tuesday's meeting quoted him as saying. It looks like the next red line is about to be drawn.

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