Too early to crack the ouzo

Posted | 23/02/2015 / Views | 2730
Back to News
Next Article

Whilst main stream media reported the Greek / Euro debt deal as ‘done’, it is far from that.  The ‘done’ deal is only for 4 months and first needs the Troika (EC, ECB and IMF) to sign off on Greece’s proposed reforms to be supplied by the end of today (Euro time).  In fact the Greek Finance Minister had this to say a little later: 

“We’re in trouble next week if creditors don’t accept Greece’s reforms.  If our list of reforms is not backed by the institutions, this agreement is dead and buried.”

They are indeed in trouble as they will be unable to meet their obligations without the extension and default (they also have the IMF loan to repay within that period) but also have mass anti austerity demonstrations still going on in the country that elected them on a ‘no austerity’ platform.  As the German Finance Minister commented after the deal, the “Greeks certainly will have a difficult time to explain the deal to their voters”…

However the agreement says the Euro "will, for the 2015 primary surplus target, take the economic circumstances of 2015 into account." – in other words they will allow a softer austerity approach than the original bailout conditions required given what a mess Greece is.

So the saga continues, and even if agreement is struck, it only kicks the can for 4 more months.  We share the view of many that this still poses a very serious threat to our interlinked financial worlds.  Phoenix Capital Research has this to say:

“..the entire Western financial system has sovereign bonds (US Treasuries, German Bunds, Japanese sovereign bonds, etc.) as the senior most asset pledged as collateral for hundreds of trillions of Dollars worth of trades.

Indeed, the global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Greece… are one of, if not the primary collateral underlying all of these trades.

Lost amidst the hub-bub about austerity measures and Debt to GDP ratios for Greece is the real issue that concerns the EU banks and the EU regulators: what happens to the trades that EU banks have made using Greek sovereign bonds as collateral?”