Another Fudge Re Greece Proposed

According to the latest leaks ahead of the EZ finance ministers meeting tomorrow, the EZ is considering the following.

• To decide on financing requirements for Greece through 2014 (ie after Mrs Merkel’s elections in September 2013), and not 2016;
• E44bn will be provided to Greece in one lump sum (on December 5th), a part of which will be used to buy back bonds from the private sector. The German’s have suggested at a 75% discount is applied on half of the outstanding private sector debt;
• There will be no additional money for Greece to finance the funding gap;
• Interest rates on existing bail out funds will be reduced (materially). Those reduced rates will apply to Ireland and Portugal, as well;
• A moratorium (until 2032) on loans provided to Greece is being considered strongly;
• The EFSF/ESM will have significant control over the spending of bail out funds;
• The IMF and the EZ continue to disagree over debt sustainability.

Talk about being in denial, the Spanish authorities have stepped even further into cloud cuckoo land. Apparently, Spanish authorities suggest that they need just E40bn to recap their banks, as opposed to the E100bn, which the EZ has provisionally allocated and the E60bn approx which they had previously estimated. You will recall, that bad loans at Spanish banks have risen to a 15 month high of 10.7% in September, from 10.52% in August, according to data released by the Bank of Spain yesterday. The real reason for the lower alleged capital required is that Spain is worried that the greater the funds required, the higher their debt to GDP. However, the lack of funding for Spanish banks will mean that the economy will, in effect, continue to decline.

By way of comparison, Southern Ireland, with a population of 4.6mn people, has had to inject E64bn into its banks, about 40% of its GDP. Spain’s population is 10 times larger at 47.2mn people. In addition, Spain is in recession (and will be next year), whereas Ireland has positive growth this year and is expected to do so next year, as well. Spanish investment into housing was much, much greater and the country has an unemployment rate of over 25%, nearly double that of Ireland. Irish property prices are over 50% lower than the peak – Spain claims that property prices are just around 30% lower. I can go on and on and Come on Mr Rajoy, do yourself a favour and get real

The only good news for Spain is that it looks as if the secessionists in government in Catalonia are rethinking, though I would have thought that the public will still vote for independence;

The US home builders index, the NAHB Market Index, rose to 46 in November, the highest since May 2006 and much higher than the 41 expected and 41 in October.

US October existing home sales came in at an annual pace of 4.79mn, as opposed to 4.74mn expected and a revised 4.69mn in September. Home sales rose by +2.1% (+10.9% Y/Y) as opposed to a decline of -0.2% expected and a downwardly revised -2.9% in September. The median price of an existing home rose by +11.1%. Inventories declined to 2.14mn homes, down from 2.17mn homes in September and are 21.9% lower Y/Y. The numbers could well have been better, as they were affected by hurricane Sandy and next months numbers will also reflect the impact of the hurricane;

European markets closed over 2.5%+ higher today. The Euro has crept up above US$1.28. US markets are about +1.5% higher.  I’ll remain on the sidelines.

Thought I’d send this out given the EZ proposed fudge (sorry “deal”) re Greece.


Kiron Sarkar
November 19, 2012

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