And they think it’s all over…March 12th 2012

So Greece has been saved – is that right? Well according to ISDA (the International Swaps and Derivatives Association) a “Restructuring Credit Event has occurred with respect to the Hellenic Republic” which in the vernacular means the Greeks are bust; tell us something we don’t know! The importance of this statement is that credit default swaps (CDS) on Greek debt are now triggered and holders will have their losses made good. There were any number of scurrilous rumours that ISDA would not declare a credit event to preclude their illustrious members from paying out, but when the net downside of $3 billion needs to be shared out amongst the likes of Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, UBS, BNP Paribas and Societe Generale, then a quick whip round in the bar after close of business and the jobs a good’un.

 Their meeting went on for quite a lot longer than it takes to answer the question – “Has Greece defaulted? Yes or no.” – so it is quite likely that some on the list felt they were in for more than their fair share. Whilst the net exposure is small the gross tally is $68.9 billion according to Bloomberg so there is a lot of room for “error” here. In fact one Austrian bank, a “bad” bank left holding the baby (Greek CDS amongst other toxic waste) after an earlier reconstruction has owned up to a €1.3 billion hole in its balance sheet as a result. Undoubtedly they will not be the last casualty in this chapter, but it won’t be any of the “big boys” this time around or there wouldn’t have been a “credit event” would there?

 Given the shenanigans in this apology for a currency “union” you really shouldn’t be surprised to discover that there is far more Greek debt around than we thought we had given them “credit” for. On top of the sovereign debt it seems there is another $100 billion or so of paper, issued by the Athens Urban Transportation Co, the Hellenic Railway and assorted Greek banks amongst others, “guaranteed” by the Hellenic republic. Guarantees in financial circles tend to come with a pinch of scepticism, but when combined with Greek mythology they become truly “heroic” assumptions. And no one thought to mention these obligations before putting the taxpayer on the hook for the €130 billion bailout? Heaven forbid that anyone gets to see the full picture…

 And what did the politicos make of this deal of the century? The Greek finance minister, Evangelos Venizelos, said that the deal had helped Greece to avoid a “nightmare scenario” and given it a “new opportunity”. Blah, blah, blah! Have another box of cream donuts before you “waste away” along with your country’s economy. Far more realistically la Merkel admitted to the Bundestag that there were “no guarantees” (there’s that word again…) that the second bailout would work and that “the risks of turning away from Greece now are incalculable. No one can assess what consequences would arise for the German economy, or Italy, Spain, the eurozone as a whole and finally for the whole world.”

 Well Angela, one way or another, I think we are going to find out just what those consequences are going to be sooner than you might think.

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