by Alexander Higgins
March 10, 2012
Alexander Higgins is a Senior
NJ ASP.Net Developer. If you want the latest buzz, analysis, and
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UK Government prepares for Euro collapse and nuclear financial fallout of
Moody’s officially declaring a Greece default on their sovereign debt.
Greece has now become the first developed western nation to default on its
sovereign debt and, while the media is downplaying the consequences,
no amount of propaganda and deception will be able hide the debris that will
be scattered across Europe once the the financial shit-storm is done blowing
The consequences will be severe indeed as the
spotlight focuses on the rest of
the PIIGS nations while investors are
forced to consider the situation in Greece, which does not bode well for the
economic future of these nations nor is it a good omen for the future of the
While this can easily be written off as the speculation of some blogger,
you’ll see below that the BBC reported that even the UK government issued a
red alert warning just yesterday running the headline “UK must prepare for
the collapse of the Euro” predicting that the events that unfolded today
would soon come to fruition.
For those not following what just happened,
earlier the IDSA declaration of a “credit
event” that triggers credit default swaps and Fitch downgraded Greek debt to
“restricted default” following a debt swap deal to keep the Greek government
alive by securing an EU bailout.
Reports have now just hit the wire that Moody’s has declared Greece in
default, which will have dire consequences on Greece and the entire
For those wondering which EU nation is next, the answer is of course
Recent days have seen a mass exodus of investors' money as the Troika gave
their first indications that Portugal will be forced to restructure their
debt in the same manner as Greece.
Of course, we now know that means a default on the nation’s sovereign debt,
which then runs the risk of the contagion spreading all across Europe and
finishing in a crescendo tidal wave that may finally land on the shores of
the United States.
First reports we’ll look at reports from RT and Press TV on the Greece
default, then a report from Zero Hedge on the immediate ramifications the
default will have, followed by the BBC article warning of the collapse of
the Euro and the political unrest such an event will have.
Moody’s - Greece has defaulted
Moody’s Investors Service considers
Greece to have defaulted per its default definitions. The announcement
comes despite Athens reaching a deal with private creditors for a bond
exchange that will shave €107 billion from its €350 billion debt. [...]
Eventually, the overall cost to bondholders, based on the present net
value of the debt, will be at least 70 per cent of the investment,
“According to Moody’s definitions, this
exchange represents a ‘distressed exchange,’ and therefore a debt
default,” the US rating firm said. “This is because (i) the exchange
amounts to a diminished financial obligation relative to the
original obligation, and (ii) the exchange has the effect of
allowing Greece to avoid payment default in the future.” [...]
On Friday, Athens announced that it had
carved out a crucial bond swap deal with private investors designed to
write off more than €100 million of Greek debt. The bondholders agreed
to take huge losses, giving up some 74 per cent of the value of their
The agreement with private investors was a crucial part of a new bailout
from the EU and the IMF aimed at averting a catastrophic default which
could plunge the entire Eurozone into a deep crisis potentially harming
the global economy.
Greece is experiencing its worst economic crisis since World War II and
has been on the brink of a default with debt equal to 160 per cent of
Press TV reports
The US-based credit rating agency issued a
statement on Friday, saying that “even as 85.8 percent” of the holders
of Greek government bonds had agreed to the plan, the,
“exercise of collective action clauses
that Athens is applying to its bonds will force the remaining
bondholders to participate.”
“According to Moody’s definitions, this exchange represents a
‘distressed exchange’ and therefore a debt default."
“The exchange amounts to a diminished financial obligation relative
to the original obligation,” the statement added.
Moody’s also said the debt swap deal,
“has the effect of allowing Greece to
avoid payment default in the future.”
On Friday, the Greek government announced
that a large majority of private creditors had signed on to a debt
exchange plan expected to cancel about 107 billion Euros (143 billion
dollars) in Greek government bonds.
On February 24, Greece had formally offered private creditors the deal,
which is expected to reduce the country’s debt of about 350 billion
euros (469 billion dollars). The deal is part of the second bailout
package for Greece approved by Eurozone finance ministers during a
meeting in Brussels on February 20.
According to the second bailout package, Greece will get loans of more
than 130 billion Euros (174 billion dollars). The first bailout, which
was approved by Eurozone finance ministers on May 2, 2010, was worth 110
billion Euros (147 billion dollars).
On March 2, Moody’s downgraded the credit rating of Greece to C from Ca
and said the country’s debt exchange plan may “constitute a default.”
Meanwhile, in a statement issued on Friday, International Monetary Fund
Managing Director Christine Lagarde said
the IMF plans to offer Greece a loan
worth about 28 billion Euros (36.7 billion dollars).
Lagarde’s statement added,
“Today I have consulted with the IMF’s
Executive Board and on that basis, as discussed with the Greek
government, I intend to recommend a 28-billion-euro arrangement
under the Fund’s Extended Fund Facility (EFF) to support Greece’s
ambitious economic program over the next four years. [...]
Zero Hedge reports on what the consequences of
the Greek default
Greece Has Defaulted - Here Is Where We Stand
After reading this, everyone
should have a fairly good grasp of what happened not only today, but
ever since the great (and quite endless) European financial crisis
took center stage, and what to look forward to next…
In a nutshell - okay, a coconut
shell - this seems to be where we are:
Greece was able to write off 100
billion Euros worth of debt in exchange for a 130 billion
rescue package of new debt, of which Greece itself will
receive 19%, or about 25 billion, so that it can continue to
operate as an ongoing concern. Somehow Greece is in a better
position than before, with more debt and less sovereignty
and still - by virtue of sharing a common currency - trying
to compete toe-to-toe with the likes of Germany and the
Netherlands, kind of like being the Yemeni National
Basketball team in an Olympic bracket that includes the US,
Spain and Germany. At least a “within the euro” default
prevented bank runs in Portugal, Spain, Italy et al.
As a result of the bond
haircuts, Greece has many pension plans that can no longer
even pretend to be viable, at least according to the
original contracted scheme, but pension-holders still
working can take heart in the fact that their current wages
will be cut, too.
CDS buyers will have to sweat
bullets, jump through hoops, and be forced to endure every
cliché known to man, but they might end up getting something
for all their trouble, provided their counterparty is
solvent and that counterparty itself is not heavily exposed
to an insolvent party or a NTBTF institution, otherwise
known as a Lehman Brothers. Expect the legal profession to
be the prime beneficiary of this “event”, as any new CDS
contract will be at least a hundred pages of boilerplate
longer in the future.
Good luck to any less than AAA
rated sovereign who wants to issue debt from now on out.
That contracts can now be unilaterally abrogated, as Greece’
bonds were with the retro-CACs, bodes ill for attractive
pricing from here on out. Peripherals in the EU will suffer
most, as they face the added indignity of being subordinated
to the ECB at any point the ECB chooses to exercise its
divine right of seniority. The thing that used to be called
the risk free rate no longer exists. Bill Sharpe take note.
One hundred billion Euros worth
of perceived wealth evaporated. That can not be a good thing
for a Eurobanking system already capital short, as it raises
leverage (quick back of the envelop calculation) by about 6%
across the board. It also will not make the interbank market
any more trusting, thus increasing the likelihood of
perpetual LTRO. LTRO lll looks to arrive sooner than QE lll.
With the drawn-out Greek event
and the LTRO, Europe might believe it has firewalled the
system for at least three years and limited damage to Greece
and Portugal (who will likely undergo a similar default by
the 3rd quarter). LTRO-provided liquidity, it is hoped, will
lower market rates enough in Spain and Italy so that those
countries can meet sovereign bond obligations and both
service existing debt and issue new debt. When the LTRO
expires in 2015, “hopefully” something called organic growth
will have taken over in countries imposing severe austerity
measures on their public sectors, so that debt servicing
becomes easier. Organic growth obviously is something that
comes in a can, a can which has been kicked out to 2015.
As Europe now speaks
increasingly of greater EU financial integration, Sarkozy’s
poll numbers will be the victim and a less EU friendly
individual will likely win the upcoming election. Since
France and Germany fortunately have a long and storied
history of being the best of friends, and no one in either
country would ever pander to nationalist sentiments, this
shouldn’t present a problem.
Given how much angst was caused
by the drawn out Greek affair, the Spanish leader knows he
has enormous leverage with EU leadership and he can continue
to do what he has been doing with regard to ignoring the
deficit targets demanded/suggested by the EU. The EU might
well bark at him, but they cannot afford to bite at this
time. Muchos gracias, Greece Zero Hedge
The BBC reports on the UK government’s issuance
of the warning that EURO collapse is next
Security: UK ‘must plan for euro collapse’
Ministers should draw up plans to
deal with a break-up of the Eurozone “as a matter of urgency”, a
committee of MPs and peers has warned.
The joint committee on the government’s National Security Strategy
(NSS) said the full or partial collapse of the single currency was
It said political unrest and a rise in economic migrant numbers could
“Long-term security” is at the heart of
foreign policy thinking, the government said in response.
The committee, whose members include ex-MI5
director general Baroness Manningham-Buller, said economic
instability could leave the UK “unable to defend itself”.
It added that governments across the EU could be forced to cut defence
spending if the instability were to continue.
“International economic problems could
lead to our allies having to make considerable cuts to their defence
spending, and to an increase in economic migrants between EU member
states, and to domestic social or political unrest,” it said.
And, while the committee welcomed the
government’s decision to publish the NSS alongside the 2010 Strategic
Defence and Security Review, it said that “a clear over-arching
strategy” had not yet emerged.
Committee chairman and former Labour foreign secretary Margaret
“A good strategy is realistic, is clear
on the big questions, and guides choices. This one does not.
“We need a public debate on the sort of
country we want the UK to be in future and whether our ambitions are
realistic, given how much we are prepared to spend.” [...]
The committee said that in an era of
“diminished resources”, the UK would have to take on a more
“partnership-dependent” role in world affairs.
“We believe it is totally unrealistic
not to expect any diminution in the UK’s power and influence in the
medium and long term.”
In response, a government spokesman said
ministers remained vigilant and regularly took stock of “the changing
global environment” and threats to the UK’s security.