Greece is bankrupt, who is next?

[Shpira]

Can't believe there is no thread about this! If anyone works in finance they will know the impact this will have. Just watch the currency and bond markets move today there is going to be volatility through the roof.

Exclusive - Greece contagion fears unfounded - ECB Nowotny
Walter Brandimarte
PRINCETON, New Jersey
Wed Apr 28, 2010 5:46am BST
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(Reuters) - Fears that Greece's debt problems could spread to other euro zone countries are "unfounded" despite a downgrade of Portugal's credit ratings on Tuesday, European Central Bank Governing Council member Ewald Nowotny said.

Global financial markets slumped after Standard & Poor's cut the rating on Portugal's bonds by two notches, warning that the southern European country needs to implement a tougher fiscal adjustment to avoid further downgrades.

Minutes later, S&P cut Greece's credit ratings into junk territory, making the country's already high refinancing costs soar.

"Looking at economic fundamentals, especially the debt situations, one has to see that there are clear differences between Greece and other countries of the euro zone," Nowotny told Reuters after a lecture at Princeton University.

"So, economically, contagion is unfounded," he added.

Investors are also worried that Greece may not be able to secure financial aid in time to meet a debt deadline on May 19 as disbursement of the funds agreed by euro zone leaders depends on Greece's agreeing to a program with the International Monetary Fund.

The IMF program will impose a "whole lot of conditionalities" on Greece, which makes its outcome tough to predict, Nowotny said, adding however that he is optimistic the deal will be sealed in time because all the parties involved are aware of the time constraints.

"They all have decided to go along, therefore the timing will be met," he said.

http://uk.reuters.com/article/idUKTRE63Q4TS20100428

[Shpira]

Re: Greece is bankrupt, who is next?

(Reuters) - Rating agency Standard and Poor's slashed Greek debt to junk status on Tuesday and also downgraded Portugal, as investors worried political pressures could block a multi-billion euro bailout of Greece.

Markets in Europe and the United States tumbled in reaction to signs that the Greek debt crisis was spreading to other highly indebted states on the periphery of the euro zone.

"It's contagion from the Greece crisis which has spiraled out of control," said William Sullivan at JVB Financial Group in Florida.

"It's like coconuts falling from the tree. There's a flight from sovereign debt issuers that have suspect national finances."

Sullivan said there was "outright panic" among investors who feared they would lose some of their principal if Greece restructured or defaulted on its 300 billion euro debt.

Greece has entered "a death spiral of government insolvency," Thomas Mayer, chief economist at Deutsche Bank, Germany's largest bank, said late on Monday in remarks withheld for release on Tuesday.

S&P cut its rating of Greek government debt by a full three notches to BB-plus, the first level of speculative status. The outlook is negative, meaning the agency could downgrade Greece again.

The downgrade put Greece on par with Romania and below Kazakhstan, Hungary and Iceland, the last of which rocked global markets when its main banks imploded at the start of the global financial crisis.

S&P cited the "political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory."

For Portugal, S&P cut its rating by two notches to A-minus, saying Portuguese finances were structurally weak and the economy uncompetitive. Lisbon needs to do more than it currently plans to stabilize its finances, S&P said.

BAILOUT

Bailout talks between Greece, European authorities and the International Monetary Fund began in Athens last week, after Greece asked for as much as 45 billion euros in emergency loans from euro zone governments and the IMF this year.

Greek and European Commission officials have said the first tranche of aid will be paid before May 19, when Athens will need to refinance a maturing 8.5 billion euro bond.

But the markets are not convinced that governments have the political will to reach and sustain an agreement on the aid, especially in Germany, where public opinion is strongly against helping Greece.

The backing of Germany, Europe's biggest economy, is vital for any rescue but Chancellor Angela Merkel's Christian Democrats risk defeat in a regional election on May 9 that would end her coalition's majority in the upper house of parliament.

To rally support among their taxpayers for a bailout, European governments want Greece to commit to tough austerity steps. But they cannot push too hard since that might hurt Greek public support for austerity, and by deepening Greece's recession, make deficit-cutting targets impossible to hit.

Juergen Koppelin, a budget official in the junior party of the German ruling coalition, the Free Democrats, said on Tuesday Germany's contribution to the rescue was not guaranteed.

And although the European Commission insists the bailout of Greece will not involve restructuring its debt, the Christian Democrats' budget spokesman said on Tuesday that his party would raise the idea of forcing investors to take a discount on Greek debt with the IMF and the European Central Bank on Wednesday.

Norbert Barthle said banks holding Greek debt should have to contribute to a rescue as they had profited from the crisis and "speculated against Greece in part.

In Athens on Tuesday, about 1,500 private and public sector workers, students and anarchists marched to parliament chanting "Out with the IMF and the European Union" in protest against austerity measures that could accompany the bailout.

Most Greeks disapprove of their government's decision to ask for financial aid, according to the first opinion poll since the request was made. Of 1,400 people surveyed, 60.9 percent said they were against the decision, said the poll, released on Tuesday by Greek Public Opinion for Mega TV.

MARKETS

U.S. crude oil futures sank more than 2 percent in response to the downgrades of Greece and Portugal, while the euro fell back near a one-year low against the U.S. dollar. Britain's FTSE 100 share index dropped 2.6 percent.

Greek bank stocks plunged more than 9 percent. The Greek bank index has lost nearly 60 percent since the debt crisis began to develop in mid-October, destroying about 28 billion euros in market capitalization.

As other banks have cut funding lines to them during the crisis, Greek banks have become heavily dependent on funding which they obtain from the ECB in money market operations.

ECB rules mean that after S&P's action, any large downgrade by another agency, Moody's Investors Service, could worsen Greek banks' funding problems.

If Moody's, which now rates Greece A3, also cuts Greece to BBB territory, banks will receive 5 percent less cash when they use Greek bonds as collateral in money market operations.

Greece's two-year government bond yield soared to nearly 15 percent on Tuesday, meaning any fresh borrowing from the debt market would be ruinously expensive for Greece. Trade in its bonds has almost halted as bid/ask spreads have ballooned to prohibitive levels.

The two-year Portuguese government bond yield jumped to 5.23 percent from 4.16 percent, as the cost of insuring its debt against default rose to a record high.

Even if Greece obtains international aid this year and over the next few years, many analysts think its uncompetitive economy may continue to struggle in the euro zone's monetary straightjacket, ultimately forcing a debt default.

A Reuters poll of about 50 economists last week found them estimating a 23 percent chance of a Greek default within five years.

S&P on Tuesday assigned a recovery rating of "4" to Greece's debt, indicating it expected an "average" recovery of between 30 and 50 percent for holders in the event of a Greek restructuring or default.

(Additional reporting by Athens bureau, London markets team, and Dave Graham in Berlin; Writing by Tim Heritage and Andrew Torchia; Editing by John Stonestreet, Ron Askew)

[88Mariner]

Re: Greece is bankrupt, who is next?

And just as Argentina is about to pay off the last hundred billion to its creditors.

I think Greece would be better off defaulting instead of borrowing from the IMF. But we all know that won't happen, because, something must be done! We have to act, and quick!

I'm calling SPAIN!

[Shpira]

Re: Greece is bankrupt, who is next?

Well, the whole point is that "we" (and by "we" I mean them) are not really acting quickly enough. I mean they declared that there was going to be a bailout like 2 weeks ago...the Euro market rallied and now it turns out that Germany is not going to support the bailout which pretty much means it won't happen...or it will be offered with terms that Greece won't and should't accept.

[ace_dl]

Re: Greece is bankrupt, who is next?

It’s a fucked up situation we have been experiencing lately. The mood here is uncertainty, fear and panic. Yesterday was the worst day so far, after Standard & Poor’s downgrading the country’s debt rating along with Portugal

7.47am: Those of a delicate disposition should probably avoid this article from Reuters star blogger Felix Salmon. If your nerves are steel-tipped, though, plunge in.
Salmon has elegently blogged the highlights of a panel discussion in Los Angeles yesterday afternoon. This included noted economist Nouriel Roubini, who illustrated just why he earned the nickname Dr Doom.
According to Roubini, Greece is simply incapable of cutting its spending by enough to make a serious debt in ite debt. That makes a default inevitable, along with ejection from the euro, at which point Spain is hauled into the crisis. As Salmon reports:

Nouriel's base case, then, is Argentina 2001: after all, Greece has a much higher debt-to-GDP ratio, much higher deficit-to-GDP ratio, and much higher current-account deficit than Argentina had back then. And if that's the base case, there's no way that Greek debt should be trading anywhere near its current levels.
Of course, this being Nouriel, it goes downhill from there: if Greece is worse than Argentina, he says, then Spain is worse than Greece. Its housing bubble and bust has left the banking sector much weaker than Greece's; its unemployment situation, especially with the under-30 crowd, is much worse than Greece's; and the cost of any Spain bailout would be so much more enormous than the cost of a Greek bailout as to be almost unthinkable. The only thing that Spain has going for it is that it isn't quite at the edge of the abyss yet; if it gets its political act together and implements tough fiscal and structural reforms now, it can save itself. But clearly no one saw that happening, given Spain's political history over the past 20 years.

Hmmm - huge national debt, a deflated housing bubble, a battered banking sector, high unemployment, calls for tough reform going undeeded at the crucial moment. Does this sound like a certain other country to you?

[Shpira]

Re: Greece is bankrupt, who is next?

I say bring on the revolution.

[runningman]

Re: Greece is bankrupt, who is next?

The US is next.

[Shpira]

Re: Greece is bankrupt, who is next?

doub't it...spain, portugal and italy are pretty realistic candidates

[88Mariner]

Re: Greece is bankrupt, who is next?

And just as Argentina is about to pay off the last hundred billion to its creditors.

I think Greece would be better off defaulting instead of borrowing from the IMF. But we all know that won't happen, because, something must be done! We have to act, and quick!

I'm calling SPAIN!

spain it is!

[runningman]

Re: Greece is bankrupt, who is next?

When you actually think about how small Greece is then you would know that they are too small and insignificant to trigger a new crisis. Peter Schiff says the US is in the same if not worse position than Greece.. and since he got it right last time I will go with him.

I stick with my call of the US after the elections this fall.

[Micko]

Re: Greece is bankrupt, who is next?

All I know is that my wife and I are pretty much fucked up as it is after savage pay-cuts.

More on the way, it seems

[Shpira]

Re: Greece is bankrupt, who is next?

Financial markets have increased bets Greece will have to restructure its debt or face a default in the medium to longer term to tackle its fiscal problems even if it clinches a planned three-year aid package.

BUSINESS

The cost of insuring Greek debt against default has surged to ever higher records and the cost of raising capital to pay off old debts and run the country is at its highest since at least early 1998 as investors have cast doubt on whether the deal is enough to resolve Athens's structural problems.

The package, under which Greece would receive some 45 billion euros from the European Union and International Monetary Fund, is seen sufficient only to stave off default for 12 to 36 months.

After that time, questions remain over how Greece will tackle its fiscal problems because it is doubtful that any aid package agreed this year would be extended beyond that.

Analysts and traders have outlined a range of options for Greece, or any other euro zone country that might face a similar position, if it is unable to make payments on its bonds.

NEGOTIATED DEBT RESTRUCTURING

PROBABILITY: most likely in the medium to long term

Greece would negotiate a restructuring of its debt before missing a payment. This would require investors to take a significant discount on their debt holdings and could include extending maturities or possibly investors switching to longer maturities.

Bondholders could, however, see haircuts of anything from 20 to 40 percent of the net asset value of their debt positions, according to some analysts' calculations.

According to Brown Brothers Harriman's calculations, the current two-year Greek/German bond yield spread is consistent with about a 25 percent chance of a 50 percent haircut or about a 33 percent chance of a 40 percent haircut.

The two-year Greek/German bond yield spread has ballooned to more than 1,400 basis points as investors pummelled Greek debt.

MARKET IMPACT: Spreads on other highly-indebted countries in the euro zone would widen sharply while German benchmarks would benefit from flight to quality and the euro could fall to around $1.15, levels last seen in 2005.

UNILATERAL DEBT RESTRUCTURING

PROBABILITY: highly unlikely

Greece could impose a debt restructuring on its creditors, for example extending maturities or forcing investors to take haircuts without prior agreement.

Historically, non-negotiated restructuring are more likely to result in a haircut for creditors than are agreed restructurings.

An even more unlikely outcome under this scenario is that markets punish Greece so severely that, despite enormous legal and logistical obstacles, Athens would elect to leave the euro zone and European Union.

However, market consensus is that leaving the currency union would make it even more costly for any fiscally weaker country to borrow because of the addition of an exchange risk premium to the sovereign risk premium.

MARKET IMPACT: The euro would be hit even harder as markets would as a knee-jerk reaction price in a greater risk of euro zone disintegration. Spreads of higher-yielding euro zone countries would blow out even further versus German benchmarks.

OUTRIGHT DEFAULT

PROBABILITY: highly unlikely

About 70 percent of Greek debt is estimated to be held by foreigners, most of them within the euro zone, notably German and French financial institutions. European Union officials will try to avoid an outright default.

An outright default by Greece or any country facing a similar situation would mean exclusion from capital markets, as happened with Argentina when it defaulted in 2001. The South American country has not issued any euro or dollar-denominated debt since then as it has yet to come to an agreement with international creditors.

MARKET IMPACT: The euro would most likely fall below parity against the dollar, intra euro zone bond yield spreads would blow out, with the bond market for other countries facing fiscal challenges drying up, leaving only triple-A rated countries able to issue debt.

OTHER POSSIBILITIES

Other possibilities include the European Central Bank providing loans to help Greece meet its obligations, buying Greek bonds or relaxing its collateral rules yet further to accept any bonds as collateral irrespective of their ratings.

However, such scenarios are seen as outliers as they would require political or policy decisions that analysts say would be very difficult to achieve.

Another complicating factor is that many investors have bet on a default through credit default swaps and thus have a vested interest in forcing such an outcome.

[ace_dl]

Re: Greece is bankrupt, who is next?

All I know is that my wife and I are pretty much fucked up as it is after savage pay-cuts.

More on the way, it seems

I am sorry to hear that mate

I am employed in the private sector for an International company and I have been also experiencing pay cuts the last year. Many of my colleagues in the US and Germany have been made redundant. It is inevitable that many of us here in Greece will become jobless

[Highsteppa]

Re: Greece is bankrupt, who is next?

I'm calling SPAIN!

Yeah, I'm thinking this too. I think it was Time magazine that was saying they have mad unemployment and psycho debt right now.

[Localizer]

Re: Greece is bankrupt, who is next?

I'm gonna say Italy is next. Excessive debt, slow to no growth and extremely high unemployment.