part 3

4. Late rumor spooking markets is that Greece may exit the EURO – although that is not there call as its basically not an option at all by legal contracts. From their point of view it could make sense but the consequences would be catastrophic for the others because as they take their own currency which would drop sharply their outstanding EURO debt would double theoretically. Hence the logical second step would be a default on all Euro debt and to go for the Argentina model to pay 25 cent on the Euro with longer maturities for the outstanding debt. That would result in a markdown of around 80% for all bondholders , which would be quite a blow after they sacked in 100 bil in fresh Euro bailout funding. I suspected that such a thing will come but rather later as still some  bailout payments are outstanding. That would bring all other troubled sovereign bonds under selling pressure and create huge losses for European banks. Such an even could have a Lehman effect and bring all markets down sharply.

Today a secret  emergency meeting of EU finance ministers has been scheduled but next week we rather will have no crash yet as nobody has an interest in such an outcome. Still soon some troubling event will trigger a sell off in markets but that is 2-3 weeks away. Meanwhile we have the clasic drill as everything gets denied while the situation speaks for itself.

excerpt

Breaking: Greece Threatens To Leave Eurozone, Reintroduce Own Currency

Submitted by Tyler Durden on 05/06/2011 11:57 -0400

  • GREECE THREATENS TO LEAVE EURO AREA, GERMANY’S DER SPIEGEL SAYS
  • FINANCE MINISTER FROM EUROZONE AND EU COMMISSION HOLDINGS CRISIS MEETING TODAY IN LUXEMBOURG
  • MEETING AGENDA INCLUDES POSSIBLE NEAR-TERM DEBT RESTRUCTURING FOR GREECE
  • EUROGROUP CHAIRMAN JUNCKER “TOTALLY DENIES” MEETING TO BE HELD TODAY TO DISCUSS GREECE
    • And cue panic and furious denials: 
  • French finance ministry official cannot neither confirm or deny Spiegel report of emergency Eurozone meeting
  • Austrian Finance Minister spokesman says Eurozone breakup “absolutely unthinkable”
  • German government source says theres no plan for Greece to leave the Eurozone
  • Senior Greek government official denies report that Greece raises possibility of leaving Eurozone
  • IMF SAYS IT HAS `NO COMMENT’ ON REPORT OF GREEK EURO EXIT BID

Greece Denies

Submitted by Tyler Durden on 05/06/2011 12:31 -0400

From Reuters: Senior Greek government official denies report that Greece raises possibility of leaving Eurozone. So pretty much everyone has denied this, the EUR has crashed, and in a worst case the EUR is one step closer to reverting to its fair value: the DEM? Of course, with a record number of EUR longs, meaning the spec bandwagon in the EURUSD is orders of magnitude greater than the silver trade, the kneejerk response was down, and likely wrong. And yes, if Greece has gotten so far, German banks are certainly now happy to write off their exposure, and convert their EUR-denom Greek exposure to the drachma. The only question is what the impact to the ECB would be. As per Spiegel: “The European Central Bank (ECB) would also feel the effects. The Frankfurt-based institution would be forced to “write down a significant portion of its claims as irrecoverable.” In addition to its exposure to the banks, the ECB also owns large amounts of Greek state bonds, which it has purchased in recent months. Officials at the Finance Ministry estimate the total to be worth at least €40 billion ($58 billion). Of course, the ECB can simply print, print, print.
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~ by behindthematrix on May 6, 2011.

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