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Awaiting the Final Act of This Greek Tragedy

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Tuesday, 31 May 2011 04:48 PM Current | Bio | Archive

In Greece, we are still far, far away from the “exodos” in this Greek tragedy, which is the moment when the chorus exits singing a processional song which usually offers words of wisdom related to the actions and outcome of the play.

Luc Coene, the governor (president) of the National (Central) Bank of Belgium (NBB), said at the General Assembly of the bank (yes, 50 percent of the NBB shares are owned by the Belgian government and 50 percent is publically traded on Euronext, Brussels) that Belgium's central bank is no longer purchasing the sovereign debt of Greece, Portugal or Ireland, in response to questions from shareholders.

When Erik Geenen, who’s been for years a critical NBB shareholder, asked at the general assembly for selling the Greek, Irish and Portuguese bonds, NBB Governor Coene refused his proposal and said: “A sale would exacerbate the crisis…”

That said, The Wall Street Journal reports that Germany is considering dropping its push for an early rescheduling (restructuring) of Greek bonds, which would mean burden-sharing, in order to facilitate a new package of aid loans for Greece. The newspaper notes that some German officials “hope” that a short-term fix can be found that will allow a full deal, including a bond rescheduling later this year. I must say, I don’t share their “hope.”

Remember that only last week, ECB policymaker Lorenzo Bini Smaghi noted: “No private investor would concur if you now asked them to exchange a Greek bond maturing within the next few months with a new long-term bond - unless, that is, the investor received higher interest payments, but this would add further to the Greek debt burden.”

Investors shouldn’t overlook it remains clear so far that Germany has no intention of letting go of its core demand that private investors share some of the pain when Greece restructures.

In any case, what German Finance Minister Wolfgang Schauble should have said all the time was that there could be no remedy without the involvement of the relevant private parties since, the “extend and pretend” fudge under which we have been laboring for the past 3 1/2 years has already subjected many innocents in the eurozone, and elsewhere, to all the needless collateral damage of interventionism, ranging from greater business uncertainty, to higher taxes, to raging commodity prices. As a result, the passing of the bill back to the “banksters” who are directly responsible for the mess may finally have become the least politically unpalatable option…

The real coming crunch points (plural) in the Greek drama could come (firstly) on June 14 at the next quarterly review of Greece by the EU/IMF meeting where Greek debt sustainability that will be critical. Not only will the next 12 billion euro ($17.1 billion) disbursement be on the table, but also whether more decisive action will have to be undertaken to enhance Greek debt sustainability before market funding is required from next year in Q1 of 2012. Then (secondly) on June 20 at the Eurogroup meeting that’s ahead of the June 24 EU leader’s summit where serious decisions should be taken.

Keep in mind, June 29 remains the deadline for the next tranche of aid. The delusional so-called recent positive news on a Greek drama “exodos” positive outcome with literally an “implicit” German “capitulation” allows for now at least some kind of renewed “risk on” play in the markets.

As far as I’m concerned, I don’t play casino games and remain “risk Off,” and I don’t change my preference for the dollar, gold and the Swiss franc. I’m not in hurry and will keep my “wait and see” stance. Of course, everybody should make his or her own decision.

There is still very, very much that could go wrong for Greece before it secures its next tranche of aid. In clear words that means that although we see a fragile recovery of confidence in the euro, which is at a three-week high at this moment, the risk from a meltdown in Greece remains a monumental “real” one.

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In Greece, we are still far, far away from the exodos in this Greek tragedy, which is the moment when the chorus exits singing a processional song which usually offers words of wisdom related to the actions and outcome of the play. Luc Coene, the governor (president) of...
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2011-48-31
Tuesday, 31 May 2011 04:48 PM
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