Compromise to Nowhere; Germany Mulls Greek Debt Buyback; More Haircuts Coming?

Late last week, following a bitter feud between German Chancellor Angela Merkel and French President Francois Hollande, a compromise of sorts was reached at the latest summit.

Please consider Berlin and Paris Compromise on Bank Oversight.
European leaders have reached agreement on the roadmap to a banking oversight regime in the euro zone. Following a public back-and-forth between German Chancellor Angela Merkel and French President François Hollande, the 27 European Union heads of state and government on Thursday night found a compromise at their two-day summit in Brussels.

The agreement calls for the legal framework for financial sector oversight to be completed by the end of the year, but actual implementation won't come until later. The oversight regime will be introduced "in the course of 2013," the summit's closing statement reads.

The compromise is a victory for Merkel. Both France and Spain had been emphatic that bank oversight begin on Jan. 1, 2013. Berlin, however, insisted that any such regime be thoroughly planned and resisted efforts to move quickly, receiving support from such non-euro-zone countries as Sweden and the Czech Republic. Over a dinner of roast veal and spinach, Hollande and his allies backed down.

As the week progressed, it seemed as though the conflict between Europe's most important protagonists had escalated.

The French president in particular seemed to be on the war path. He gave a joint interview to several European dailies which included what seemed to be a direct attack on the chancellor. "Those who speak most passionately about political union are often the ones who hesitate the most when it comes to making pressing decisions," he said. His feistiness did not abate immediately upon his arrival in Brussels. Before meetings began, he insisted that the summit would be focusing on the planned banking union and not on fiscal union, Merkel's preferred project. He also accused Merkel of dragging her feet on bank oversight due to the approaching 2013 general elections in Germany.

Merkel didn't shy away from confrontation either. During her speech to German parliament on Thursday prior to her departure for Brussels, she threw her support behind Finance Minister Wolfgang Schäuble's proposal, made earlier in the week, for a super commissioner to monitor, and even veto, national budgets of euro-zone member states.
Compromise to Nowhere

Bear in mind last June the Euro leaders agreed to do this by the end of this year. Now the target, minus details, "will not come until later". The oversight regime will be introduced "in the course of 2013."

Is "introduced" the same as "implemented"? The more important question is "Does it even matter".

Catch A Falling Knife

In his Weekly T-Report Peter Tchir sums up the situation nicely.
I would love to be able to say that Europe is fixed. It isn’t and this particular summit was particularly disappointing. They announced some vague plan to plan a bank supervisor. I still don’t understand why people really think a bank supervisor would change anything. Just think about the Spanish bank bailout. Money was supposed to be available in July, then August, then September and as far as I can tell, not a single distribution has been made.

Spain is not asking for a bailout yet, and allegedly it wasn’t even discussed. I cannot tell whether it would be worse if it wasn’t discussed or that they are lying to us and it was discussed but no conclusion was reached.

Talk about various ways to manipulate the Greek debt problem. Plans range from further punishing the PSI bonds which I think would meet with incredible resistance and accomplishes nothing, to ways to get the ECB off the hook and dump losses on ESM. I am not sure there is any particularly good solution to the official sector problem because owning 10′s of billions of mismarked bonds and loans is a difficult problem to overcome.

Then there is news that France is in more frequent disagreement with Germany. That will make any longer term solution more difficult to achieve.

So why didn’t markets sell-off more? At this stage everyone still believe the ECB will intervene with OMT and the ESM will provide some form of PCL along the lines of the IMF’s programs (my ultimate goal is to write and entire paragraph with just acronyms).

One of these days, Europe will fail to catch the falling knife. Europe has let the situation deteriorate and then the EU cobbles together some sort of program that kicks the can for a little while. OMT and ESM should be the ultimate in can kicking, but every delay means that resistance will mount. If ESM gets immediately saddled with ECB GGB losses, how will the countries react? Will there be an immediate capital call? The ESM is supposed to be leveraged at 6.66 times and any losses that hit capital would limit how much it could currently borrow.

I see a likely scenario that the market starts to question the resolve of Europe and the dissent amongst all the various organizations and the countries rewards those who bet against Europe now. I would be selling Italian and Spanish bonds here or even short.
Meaningless Plans Roll On

Slowly but surely Greek bondholder losses approach 100%. There have been several haircuts already and now the German Finance Ministry Mulls Yet Another Debt Buy-Back Scheme.
Germany's Finance Ministry is considering a debt buy-back as a possible way of reducing Greece's huge debt pile which threatens to rise well above a target level of 120 percent of GDP by 2020, according to German news magazine Spiegel.

The Greek government could borrow money from the euro zone's permanent bailout fund and use this to buy back its own debt, which at present trades at around 25 percent of its face value. Buying just 10 million euros worth of Greek bonds could reduce the debt mountain by 40 million, Spiegel said.

Talks would have to take place with debt-holders to see if they would accept such a price for their Greek paper.
Ho Hum

Would bond holders agree to another haircut? Even if they did,  would it matter?

In a report earlier this week Tchir estimated a buyback would save Greece less than a billion euros a year.

His math "Greece pays 2% on these bonds and the first maturity is 2023. Other than meeting some artificial Troika target, this plan has no meaningful impact. Greece will have to borrow money from the ESM to pay for these bonds. Depending on the price they pay and the coupon on the new debt, they will likely receive cost savings of far less than €1 billion per annum. If the average price paid is 50% of par (seems likely once the deal starts) and the borrowing rate on the ESM loans is 2%, the cost savings would be €600 million."

There's your answer: no it would not matter.

Mike "Mish" Shedlock


News for factory,Allied Cash Advance,Photography,Beach Water Park,Educational Leadership,Vacation And Travel,Wedding Dress,Family Vacation Packages,Casino and Gambling,Health Insurance,Best Auto Insurance ( BAF ),Web Hosting Professional,Home Design And Remodeling,Information Property For Home,Wireless TV Networking,Business Plan Guide,Educational Guide,Custom Essay Writing Service,Plumber Service And Repair,Property House,Architectural House Plans,Car Auto Services,Computer service and repair,Computer Networking,Business Planning Strategies,Womens Giving,Healthcare and Medical Jobs,Retail Inkjet Solutions,Online Casino Games,Alcohol Drug Treatment,Web Designers,Apollo Amatuer Night,Public School Performance,Kanza Museum,Cap Inter Entereprises Emploi,Culinary Tourism,Business Traveller,Bridal Expo,Container Atlas Architecture,Culinary Tours - Packages and Travel,Dancing Ink Productions,Defend Automotive Group,Real Finance Group,Business Consulting Services,Home Design Audio,Health Projects International,Health Resources,Health Effects of Alcohol,History of education,Vietnam travel guide,Westland Foundation,Lighting Business,Networking Business Professionals,Housing Decoration,Future Business,Health and Beauty Tips,Hotel Cafe and Restaurant,Enhancing Education,Home Improvement Projects,Political Philosophy,Healthy Grieving Process ,Unique Weddings in New Orleans,Art Plus Science ,Advantage Business Media,Mutual Financial Services,Adventure Travel and Holidays,Alternative Medicine Treatments,Web Design and Marketing,Electronic Payment Solutions,Life Success in Business,Devium Car Interiors,Easy Divers Academy,Water Treatment Process,Software Development Company,MSDS Translation Language,Orion International Technologies,Refreshing Summer Wine Guide,Learn Technical Writing,Health Spa and Resort,Creative Book Publishing,Positive Business Mentality,Charter Healthcare,Discount Hotel Rates,United Industries,Warrior Insurance,County Tourism and Vacations,Wedding Ring Jewelry,Studio Design Decorative,Journalism Careers,Gaming Accessories Computing,Business Strategy Consultant,Cefori Technologies Information,Physics and Astronomy,News Fashion,Business Online,Michigan Apartments,Legal Information Institute,Guide Fashion Shipping,Home Insurance Quotes,Web Design Trends,Musical Instruments and Gear,Travel and Leisure,Importance of Education,Auto Financing Loans,Contractor Business Systems,Business Travel,Importance of Sex Education,Education Classroom,Creative Idea Laboratory,Luxury Paradise Vacations,Healthiest Alcoholic Drinks,Sports Betting,Business Environment,Business Directory,Internet Services,Top Styles,Architecture and Design,Discovery Travel and Tourism,Drug Abuse Treatment,Cheap Auto Financing,Business and Technology,Online Trading,Casino Gambling,Easy Online Shopping,Education Games,Social Media Networks,Online Dating,Luxury Honeymoons,Media and Entertainment,Home Decorating Ideas,Insurance Services,Payday Loans Online,Beechwood Travel Guide,Paradise Garden,Business Trends Consulting,Expert School Consulting,Latest Fashion Trends,Alternative Health Care,Technology Trends In Society,Health Technologies Resources,Island Wedding Services,Network Society,Gambling Experts,Medical Insurance Expert,Home Repair and Remodeling,Sexual Health Services,Education Resources,Automotive Solutions,Michigan Trade Associations,Luxury Fashion and Accessories,Theoretical Physics,Financial Advice,Adult Online Dating (Escorts),Pets Health Insurance,Better Homes and Gardens,Avastone Technologies,Discover Student Loans,Sports Authority,Vitamins and Supplements,Business Systems Online,Food Network Recipes,Business and Government,Smart Legal Strategy,Occupational Health Care,Music Education,Online Dating Tips (Expert),Online Marketing Lexikon,Citizens Council Network,Economics and Finance,Fashion Entertainment News,Luxury Travel Destinations,Online Auto Insurance,Home Improvement Loans,Building Business Foundation,Human Resource Consulting,Educational Media pay day loans
life insurance quotes
Credit Loans (finance)
Foreign Auto Parts
Health and Fitness
Drug abuse effects
Destination hotels and resorts
Professional Financial Marketing
Personal Finance
Computers and Technology
Auto Insurance
Real Estate Property
Computer Graphics Technology
Home Improvement
Arts music schools
Online Education Classes
Hotel and Travel
Security development program
Business auto loans
Medical And Public Health Organizations
Land and Homes
Better Health Kids
Engineered Heating
Trade Finance Services
Switzerland Tourism
Casa Travel
Clothing Accessories
University of Technology
Best Law Schools
Marketing Technology
Vacation Tour and Travel
Insurance Agents and Insurance Brokers
Construction Engineering
Healthy Home Economist
Masters Home Improvement
Michigan Web Design
Personal Online Banking
Health Education Foundation
Travel Pack
Real Estate and Home Ideas
Museum Vacations Travel
Free Statistical Software
Blog Free Statistical
Buying and Selling Real Estate
Educational Play
Big Top Business
Alternative Health
smooth skin
Products and Services
Construction Project Management
Northside Car Service
Online Essay Writing
France Health
Europe Program Modernization
European Travel Destinations
Science and Technology Project
Online Store Marketing
Law Society Consulting
Business Networking Company
Motivation to Study
Metropolitan Hotel
Technological Innovation
EAP Business
Travel Guide and Virtual Tours
The Business Partnership
Accessible Accommodation
Entertainment News
Medicines Agency
Carpet Cleaning
International House
VIP Shop
Online Clothing Shop
Institute Education Religion
Ford Escort Team
Shop Engine Part
Computer Hardware
Medical Career
Paris Construction
Professional Translation
Streaming Wizard
Alcoholism and Drug
Medical Laboratory
Commerce Business
Educational Kids Play
Space Education
Home Repair Volunteer
Fashion Talent
Health and Safety Executive
Play Web Games
Travel and Surfing
Property and Estate Agents
Technology Group Solutions
Student Service Center
Construction Industry
Media Center Computer
Teny Fashion
Home Remodeling Services
Inspector Network
Car Rentals
Leader Dogs
Rise Health Systems
Business Strategy Consultant
Personal Life Coaching
Company Business Coaching
Entertainment News
Physics and Astronomy
Science and Technology
Cheap Vacation Packages
World Business Academy
Planets Project
Travel and Leisure
Prevent Drug Abuse
Education Certified
Play Kids Games
Legal Defense Fund
Real Estate Strategies
Isolation Globale
Insurance Coverage Law
Rock Hotel and Resorts
Medical Insurance
Healthy Mind and Body
Marjahaan Autokatsastus
Free Sports Authority
Auto Insurance Coverage
Global Technics
Advitium Manufacturing
Professional Core Education
Special Finance Services
Bergen County Contractors
Great Children's Art
Health Supply Company
Social Media Power
Texas House Restaurant
Carbon Consultant
Carbon Expert
Low Carbon
Reset Carbon
Healthcare Commissioning
Virtual Job Tryouts
Ethos Academy (Education)
Intrinsic Schools
Attorney General
Technology Software
Business Plans
Digital Media
High School Resources
Adult Resources
Gamblers Anonymous
Ecuador Real Estate
Software Development
Festival Fashion
Drugs And Alcohol
Business Intelligence
Food Network Recipes
Journal Human Resources
Games and Technology
Technology Development
Web Resources Express
Payday Loans Bad Credit
Art and Craft
Business and Finance News
Ecological Sciences
Education Resources
Web Design
Music Education
World Resources Institute
Business Health Guide