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Greek Elections and the Eurozone Crisis – Day Four

It Happens Every Spring - flickr

“This is gettin monotonous. Me and the kid here is playin catch while you guys is just fannin the air” – It Happens Every Spring

Pretty good way to start off this diary on the goings on in the Eurozone.  In case you haven’t seen the movie, it’s about a college chemistry professor who accidentally come up with a formula that causes baseballs to hop over wood and uses it to help the home teem.   Rather like the politicians trying to get the dept problem to avoid the banks. Which now focuses on Spain as well.  Here is the current situation from The Guardian.

1.50pm: De Guindos is still going:

He believes the cost to Spain’s bank restructuring fund of helping out banks that cannot come up with the new provisions will be less than €15bn euros. Loans wil be for up to five years, but can be converted into shares (i.e. part nationalisation) if the banks fail to pay them back.

1.39pm: And more from Giles:

De Guindos has said that two separate valuations of the global real estate loan portfolio of Spanish banks will be produced by independent valuers.

Journalists at the press conference want to know if this is a vote of no confidence in the Bank of Spain and its valuations. Ministers do not want to answer the question and are insisting that all they want is maximum transparency.

Live blog: newsflash

1.35pm:More from the Spain presser. Giles Tremlett writes:

Finance minister Luis de Guindos is explaining Spain’s second round of banking reform in three months, following this week’s decision to nationalise the fourth larget bank, Bankia.

The government wants banks to make a further €30bn or more in provisions against potential losses in loans to real estate developments. This comes on top of €54bn of provisions from the last reform in February. This brings overall coverage to some 45 percent of all real estate loans (it is not clear whether this includes mortgage loans).

This will presumably force some banks into losses, bringing further mergers and consolidation. The government’s FROB restructuring fund will offer loans at almost 10% interest rates to those who need them.

1.26pm: Seems a combination of factors is driving the markets down today with worries about Greece, Spain and the state of banks all at play.

Anyway, this is quite a pithy take from BNP Paribas strategist Patrick Jacq, courtesy of Reuters:

“The situation is critical and could be terrible if there’s no such majority in coming weeks because with no more financial bailout Greece will default and its banks will collapse and ultimately it could mean Greece would have to leave the euro zone.

“This is what’s driving the market at the moment…The environment remains very favourable for safe havens such as the German Bund, U.S. T-note and gilts and for wider peripheral euro zone spreads.”

So now we have a Spanish situation. Well there has always been a Spanish part in this theatre of the absurd. And The Telegraph is has this to say.

13.40 More detail from Spain – banks which need to go to the government to raise the extra capital required under the new rules will be able to get five-year loans via a convertible bond carrying a 10pc interest rate – which is twice the interest on Spain’s government debt.

13.16 And there’s more from Spain – the economy minister Luis de Guindos has said the government is calling for Spain’s banks to increase their provisions on their sound real estate loan books.

The banks must increase their provisions for these loand from 7pc to 30pc – quite a jump. And this will require another €30bn from the banks.

That comes on top of the €50bn Spain’s banks were asked to set aside in February.

Banks who can’t meet these terms can get loans from the Spanish government, Mr De Guindos (below) said.

After these measures, total provisions by Spanish banks against their real estate assets and loans will be €137bn.

So Greece will have it’s major banks audited by the outside. What a unique idea. How come we didn’t think of that. ?

Now on to Greece where the current attempt to form a government has fallen flat.

4.05pm According to reports, Lucas Papademos has refused to continue as prime minister, if Greece goes to new elections.
4.03pm The country’s lenders will need a positive report on its reform progress before releasing a planned second tranche of aid worth around 4 billion euros at the end of June, Germany’s finance ministry said on Friday.
For the payment of the scheduled second tranche a troika evaluation is of course required,” ministry spokesman Martin Kotthaus told a news conference.
The troika comprises officials from the European Commission, the European Central Bank and the International Monetary Fund.
4.00pm The risk of contagion from Greece’s economic crisis spreading to other euro zone countries has lessened, Austrian Finance Minister Maria Fekter said on Friday. “The measures we set are very, very painful for Greece and cost a lot of money in the euro zone but we had hardly any other possibilities,” she told Austrian radio in an interview. “Now the contagion risk is not there to the same extent, so I assume the banking landscape in Europe would be prepared for this.” If Greece was unable to pay its debts, that would hit the European Central Bank and the countries that have helped Greece out, she said, adding:
I am fighting to give the Greeks time to get into better shape economically. You have to think in different time horizons for state problems.”
She said there was no chance for other countries to eject Greece from the euro zone. “But if the Greeks decide themselves to exit then the community of nations has to take note of this, but then the aid is also stopped.”
3.56pm A meeting is underway between President Karolos Papoulias and outgoing Prime Minister Lucas Papademos.
So now not only does Greece not have a government, they no longer have a PM. This should give the investors some encouragement – or not.  But to be fair one must remember that Greece did not have a real elected goverment until sometime in the 1970s.
So enjoy the game pups.


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