Monday, 09 May 2011 14:39

Liar, Liar, European Pants on Fire!

When I say that much of the EU is lying about their financial prospects and Greece (among other countries) will restructure or default, you may or may not listen (quite possibly to your detriment). When the ratings agencies (who are always accurate and timely) say restructuring is on the horizon (a year after me) and the head of the Euro-zone finance ministers finance ministers outright says 'Of course we're lying', then what do you do? There are rumblings and most likely a tacit agreement that Greece will get its emergency loan debt restructured. Reference:

  • (Reuters/CNBC) S&P Cuts Greek Rating; Moody's Warns of Downgrade - ... Standard & Poor's slashed the nation's rating to B from BB-, while rival agency Moody's announced that it put Greece on review for a potential downgrade of its current B1 rating. "In our view, there is increased risk that Greece will take steps to restructure the terms of its commercial debt, including its previously-issued government bonds," S&P said in a statement, warning that more downgrades could come. It said its projections suggest that principal reductions of 50 percent or more could be needed to restore Greece's debt burden to a sustainable level. Greece, whose fiscal slippages triggered Europe's debt crisis, is rated junk by all three major rating agencies. [BoomBustBlog research considered Greece junk a year before all three ratings agencies took appropriate action.] Moody's placed Greece's B1 sovereign credit rating on review for a possible downgrade after the country revised upward its general deficit for 2010, increasing uncertainty about the sustainability of its deficit. Moody's said a multi-notch downgrade is possible if it concludes that Greece's debt metrics are on an unsustainable path. "In Moody's view, such conditions would materially increase the risk of debt restructuring over the short to medium term," the agency added. "Fitch rates Greece at BB+ with a negative outlook. The agency does not comment on market speculation," it said in a statement.

  • European Officials to Revamp Greek Aid: European officials are preparing to revamp Greece’s bail-out package after concluding that Athens would be unable to raise money in the markets early next year, as envisaged under a €110 billion ($158 billion) rescue plan. Euro zone ministers this weekend publicly acknowledged that Greece would probably need additional cash from the European Union or other international institutions. We think that Greece does need a further adjustment programme,” said Jean-Claude Juncker, Luxembourg’s prime minister and chairman of the eurogroup of finance ministers. George Osborne, UK chancellor of the exchequer, said changes to the Greek bail-out programme were “inevitable”.Although such a conclusion had been widely accepted by analysts and officials working on the issue, the public recognition marks a turning point in the debate over Greece’s future.

We have been alleging that Greece would be force to restructure for well over a year now (see I Think It’s Confirmed, Greece Will Be the First Domino to Fall and then reference Greek Crisis Is Over, Region Safe”, Prodi Says – I say Liar, Liar, Pants on Fire!). Those who would have followed our advice would have been ahead  of all three agencies' downgrade to junk, ahead of the total obliteration of Greek bank's public equity, and ahead of the near halving of Greek publicly traded debt. Well, now it's time to pay attention to my calling the bluff of those banks that say a Greek default will do no material harm - With Greek Debt Yielding 20%+ and Trading at Half Par Value, European Banks Are Trapped! Monday, April 25th, 2011

For those who feel these analyses are barking up the wrong tree, simply realize that a maturity extension is a restructuring - economically, it is essentially a default. The articles above discuss maturity extensions and/or coupon reductions in the emergency loans given. Would anyone be willing to wager whether or not the bonds purchased by the ECB, et. al. are next up? I say damn near guaranteed. After all, Greece cannot dig itself out of this hole. The hole must be partially filled with the sacrifices of the debt investors who put money into Greece. It's really as simple as that.

This perspective on Greece's prospects is actually quite optimistic compared to raw calculations and the absence of anything resembling a modicum of credibility, honesty, or the truth!

Roughly 14 months ago, I went through efforts to clearly illustrate how the reportings of the EU and Greece (as well as the financial reportings of most of the highly indebted EU nations) no only cannot be trusted, but amount to either outright lies or gross inaccuracies that have been repeated in a serial nature. This is evidenced by the postings from the beginning of last year:

  1. Once You Catch a Few EU Countries “Stretching the Truth”, Why Should You Trust the Rest?

  2. Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!

Well the WSJ blog reports more of the same as "Luxembourg Lies on Secret Meeting":

Is lying considered an appropriate mode of communication for euro-zone leaders? We have to wonder after a strange episode on Friday evening. Here’s what happened:

Just before 6 p.m., German news magazine Spiegel Online distributed a report saying that euro-zone finance ministers were convening a secret, emergency meeting in Luxembourg that evening to discuss a Greek demand to quit the euro zone. Calls from reporters flooded in to Guy Schuller, the spokesman for Luxembourg Prime Minister Jean-Claude Juncker, the man who is the head of the Eurogroup council of euro-zone finance ministers. In a phone call and text messages with two reporters for Dow Jones and the Wall Street Journal, Mr. Schuller repeatedly said no meeting would be held. He apparently said the same to other news outlets; at least one more moved his denials on financial newswires.

Of course, there was a meeting–although not, apparently, to talk about Greece quitting the currency, which would be an extreme step to say the least. Mr. Juncker even said a few words to reporters who had hustled to Luxembourg to stake out the gathering.

So why the lie? “I was told to say there was no meeting,” said Mr. Schuller, reached by telephone Monday. “We had certain necessities to consider.”

It gets better with choice quotes such as:

  • We had Wall Street open at that point in time,” Mr. Schuller said.
  • There was a very good reason to deny that the meeting was taking place.
  • It was, he said, “self-preservation.
  • Asked whether such deliberate misinformation would undermine the market’s confidence in future euro-zone pronouncements, Mr. Schuller, lamenting that the market had practically no confidence in pronouncements already, said “not at all.
  • When Mr. Juncker, or European Central Bank President Jean-Claude Trichet, or French Finance Minister Christine Lagarde say something to the markets, Mr. Schuller said, “nobody seems to believe it.

I recommend reading the WSJ blog post for the full story. I leave you with this YouTube clip on the man with the master plan lies...

[youtube vi9qG3YbiWg]

We have already covered the scenarios encompassing a maturity extension on Greece's debt as well as a potential coupon reduction and/or principal haircuts. You can see each scenario and the results as a professional/institutional subscriber by clicking the following links:

Last modified on Monday, 09 May 2011 16:03

4 comments

  • Comment Link Joeblogg Thursday, 19 May 2011 10:02 posted by Joeblogg

    Most likely, the EU leaders know/have heard of Reggie and his realistic views, and their trying to prolong the agony just to try and disprove Reggie. :p

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  • Comment Link James Tuesday, 10 May 2011 08:01 posted by James

    Reggie, as another Irishman quite perplexed at the collective failure of the majority to countenance the scale of the economic existential crisis we find ourselves in, and as an avid follower of your work since this whole sorry mess started imploding on itself, allow me to say this - You sir are most undeniably, searingly, blazingly and obviously The Man! You help bring some small hope that one day self-evident truth and reason shall prevail.

    Keep lobbing those fiery brimstone bombs of economic and financial fact, reason and truth down on their corrupt, Quixotically delusional, meddling central banking (central planning?) heads!

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  • Comment Link Reggie Middleton Tuesday, 10 May 2011 06:17 posted by Reggie Middleton

    Well, thank you very much sir! :-)

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  • Comment Link Thomas Tuesday, 10 May 2011 06:10 posted by Thomas

    As always Reggie is right on the ball .I am astonished that we do not have anybody here in Ireland who does such intensive research and is streets ahead of the so called established experts .Reggie is a breath of fresh air and his gentle manner makes him more compelling .Well done Reggie I count myself to the many new followers you are now collecting in Ireland.

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