September 9, 2011

Greece is assumed to default in a matter of days


It appears the end game for Greece is approaching fast and Italy appears to be next in line.

Bloomberg reports Germany Said to Ready Plan to Help Banks If Greece Defaults
Chancellor Angela Merkel’s government is preparing plans to shore up German banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.

The emergency plan involves measures to help banks and insurers that face a possible 50 percent loss on their Greek bonds if the next tranche of Greece’s bailout is withheld, said the people, who spoke on condition of anonymity because the deliberations are being held in private. The successor to the German government’s bank-rescue fund introduced in 2008 might be enrolled to help recapitalize the banks, one of the people said.

The existence of a “Plan B” underscores German concerns that Greece’s failure to stick to budget-cutting targets threatens European efforts to tame the debt crisis rattling the euro. German lawmakers stepped up their criticism of Greece this week, threatening to withhold aid unless it meets the terms of its austerity package, after an international mission to Athens suspended its report on the country’s progress.

Greece is “on a knife’s edge,” German Finance Minister Wolfgang Schaeuble told lawmakers at a closed-door meeting in Berlin on Sept. 7, a report in parliament’s bulletin showed yesterday. If the government can’t meet the aid terms, “it’s up to Greece to figure out how to get financing without the euro zone’s help,” he later said in a speech to parliament.

Longer term, euro countries will “only preserve the common currency if there is more integration” in the European Union, Merkel said in a speech in Berlin today. The EU “won’t be able to avoid treaty change.” While intensive discussions lie ahead and the path won’t be easy, policy makers “shouldn’t be afraid” of tackling the challenge, she said.

And this email is making the rounds and catching most traders' attention:
From colleague: trader friend just hit me with the following: There is “Chatter” in the market of a Greek Default this Weekend - and their CDS is over 400 wider…  Soc Gen is off 7% on exposure - German CDS more expensive than UK;s - despite the ballooning in the CDS prices for Lloyds and RBS.
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