Greece Run on the Banks!

[DMac]

http://ftalphaville.ft.com/blog/2010/04/08/197906/greek-out-2/

It’s a bank run! Or at least, it’s an outflow. Is Jean-Claude Trichet watching?

The European Central Bank president is due to give what some commentators have called “one of the most important communications by the ECB in its short existence” later today. Many are hoping the outlining of changes to ECB collateral criteria for its liquidity operations will help calm market jitters.

In the meantime though, the market has to contend with stuff like the below, via the FT:


Greece’s four largest banks are seeking government support to help counter a liquidity squeeze resulting from a significant flight of deposits in the first two months of the year. George Papaconstantinou, finance minister, said on Wednesday that the banks “have asked for access to the remaining funds of the support plan” – a €28bn ($37bn, £24.5bn) government package that was put together during the 2008 global credit crunch.

The jury’s still out on the causes of recent outflows from Hellenic banks, however. Certainly the country’s debt crisis could be worrying to anyone with local deposits, but at the same time, the threat of higher taxes has also been cited as a possible cause.

Here’s some speculation courtesy of David Mackie at JP Morgan:


It is hard to know how to interpret this large decline in deposits. To some extent it is seasonal: January and February do tend to be soft months for deposit inflows. Over the five years from 2005 to 2009, the average two-month move each February has been a gain of 0.3%, compared to an average two-month gain over the five-year period as a whole of 1.9%.

But, there is clearly something going on in addition to the normal seasonality. It could reflect corporates paying higher taxes as fiscal tightening bites, residents buying higher yielding government debt, or residents moving money abroad to avoid future tax increases. Alternatively, it could reflect increased concern about bank solvency and the ability of the government to support the banks in a crisis.

For now it looks more like the former than the latter. The decline has been concentrated in overnight deposits and in those with a maturity of less than a year. Meanwhile, the past two months has seen a sharp increase in deposits with a maturity of more than two years. Clearly, if residents were concerned about the solvency of the banking sector and the government, they would not be putting more money on deposit at longer maturities.

Regardless of the causes, it’s certainly very worrying for the Greek banking sector.

The country’s banks have traditionally been largely deposit-funded, but in recent months they’ve come to rely increasingly on the ECB’s liquidity largesse, via the Bank of Greece, the nation’s central bank.

In fact, as of February 12 per cent of Greek banks’ liabilities were funded by borrowing from the Bank of Greece, according to JPM. Compare that to 1.9 per cent in January 2007, before the crisis began, or even the 10.1 per cent of December last year, and you have a (Mediterranean) sea-change in the Greek bank sector:

http://av.r.ftdata.co.uk/files/2010/04/greekbankrun.jpg

Indeed, Moody’s changed its outlook on Agricultural Bank of Greece from stable to negative on Thursday, in expectation of increased funding costs — adding to a rash of recent downgrades.

Meanwhile, Greek CDS is now trading around 450 basis points. That’s a record wide and nearly 40bp wider than yesterday’s close, according to Markit. Meanwhile the spread between Greek bonds and German bunds is at its highest since the Euro made its debut in 1999.

In other words, it looks like Trichet has quite a task in front of him.




http://www.ft.com/cms/s/0/b11e2a92-42a5-11df-91d6-00144feabdc0.html

Greek banks seek more aid as savers withdraw €10bn deposits

By Kerin Hope in Athens

Published: April 8 2010 03:00 | Last updated: April 8 2010 03:00

Greece's four biggest banks are seeking help from the government after savers took €10bn (£8.8bn) of deposits out of the nation's financial system.

The flight of money from domestic deposits reflects growing anxiety among wealthy Greeks about keeping their assets in the country as its debt crisis has escalated.

[DMac]

http://2.bp.blogspot.com/_wkgIzuqJM0w/S73st9LzFbI/AAAAAAAADpE/2wcnesQ27vg/s400/Tsunami.jpg

[DMac]

Greece Is Out, We Just Have To Sort Out the Details

April 8, 2010

By John R. Taylor, Jr.

Chief Investment Officer

Global monetary and macro economics have become more like the literary nonsense in Alice in Wonderland. It is great fun to read, but unfortunately for all of us, we are living through this economic house of mirrors, which is more and more rapidly spinning out of control. The situation in Greece is the most poignant example at the moment. Although there do not seem to be more than 100 people in all of New York City that have any interest or concept of what is going on in Greece and within the euro, the events of the next few months will have a tremendous impact on the world. If the political actors in this tragedy-comedy play their roles well – staving off collapse – our suffering will be worse. There is no way to win. The powerful elite political forces, and their co-opted market allies, involved in this fanciful decision-making can not control the economic reality that will eventually destroy Greece and Europe. Hopefully, they will be forced to give up before the damage is too severe. The quicker the crisis comes, the better for the world, but almost everyone is working in the other direction, stretching it out to inflict maximum pain. At this point, the best way out for Greece is very clear. Greece should pull out of the euro this weekend, issue new drachma notes as soon as possible, and let the lawyers clean up the mess. If I were running Portugal, Italy, or Spain I would do the same thing – the first one out is the winner.

Our office has done a non-exhaustive, but quite extensive search of the research coming from banks, and it made no difference whether it was from Anglo-Saxon or European names, it was all positive for the rest of the year. Greece will make it! Fantastic cash flow projections, great statements about ‘never giving up,’ assessments of how horrifying it would be to leave the euro, and legal issues galore. Almost not one of these major institutions issuing these studies talked about how horrifying it would be to remain in the euro, how many man-hours of work would be lost, and how lives would be destroyed. There was no comparative studies section, which would have compared what we already know from Ireland, Latvia, Lithuania, and Iceland. Internal devaluation is hell. We believe the Baltic states will make it because they would eat grass and leaves to stay out of the hands of the Russian bear next door, and if Europe follows its Greek strategy much longer, they might have to. Remember, retail sales in Latvia were down 30.2% last year and this year they should decline another 10% or so. My heart goes out to them, but their country is in a much better situation to suffer this internal devaluation process than Greece, as international trade is a much bigger factor of GDP. Latvia can win even if the Germans are determined to have no wage growth, positive productivity growth and no appreciable CPI movement, but the Greeks and the other southern Europeans are more rational than the Lats. There is nothing but politics that says that Greece can make it through this process. Although politics includes compromise when it is working, the breakdown of politics is war. Usually the war implied in this famous aphorism would be between states, but in this case it would be between the people and the government that has failed them. The Greek government can’t follow the current course. On the issue of ‘internal devaluation,’ the European political elites are way out of touch with their people: almost no one will stand for it. The political maze we are entering might have many twists and turns with distorting mirrors, but money is money and its powerful logic will win in the end. No matter how many speeches and new regulations are made, the Greek economy will continue to deteriorate, dragging down the rest of Europe far more powerfully than its 3% implies. Please let the Greeks out and please restructure the euro, or drop the whole idea. If you don’t, the future will not be pretty.

h/t Teddy KGB

[uranian]

looks more and more likely that the € will be the first card in the fiat house to fall. gold's at a record high in €:

http://goldprice.org/charts/history/gold_1_year_o_b_eur.png?0.6814865209543914

[MarketNeutral]

EU plan not halting Greek crisis‎

Greece's borrowing costs spiked to a record high Thursday, intensifying the country's debt crisis and suggesting a eurozone and International Monetary Fund rescue plan is providing little support for Athens' struggle to avoid default.

The higher interest rates demanded by bond investors are potential poison for the Greek budget; unless they fall, the government will pay a massive premium to borrow and face a vicious cycle where higher borrowing costs fuel fresh default fears.

A Greek default would be a further blow to confidence in the shared euro currency, which has already fallen against the dollar as the crisis has escalated.

But Finance Minister George Papaconstantinou said Greece's program to pull out of a crisis that has markets speculating the country may default would work, and European Central Bank president Jean-Claude Trichet insisted that default was "not an issue" for the country.

The Socialist government, elected in October, has announced a harsh austerity program that includes cuts in civil servants' pay, pension freezes and higher taxes, and insists it will bring its deficit down to 8.7 percent of gross domestic product by the end of the year, from a revised projection of 12.9 percent at the end of 2009.

However, the high interest rate gap, or spread, between Greek 10-year government bonds and the German equivalent, considered a benchmark of stability, show markets are unconvinced that Greece can pull it off.

Spreads that began the day at the already high figure of 401 basis points — which translates into an interest rate of 4.01 percentage points higher than German bonds — spiked to 448 basis points in the early afternoon, the highest level since Greece joined the euro in 2001.

Still, Trichet expressed confidence that Greece's plan would work, and said the eurozone and IMF support plan announced last month in Brussels was "a workable framework" and "a very, very serious commitment."

"I would say that taking all the information I have, default is not an issue for Greece," he told a news conference in Frankfurt.

In Athens, Papaconstantinou said Greece's first quarter budget deficit figures were on target, with the January-March shortfall declining by 40 percent to €4.3 billion ($5.72 billion) from €7.1 billion in the first quarter last year.

Speaking in Parliament, the minister said the fall came before additional austerity measures announced March 3 took full effect.

"I reiterate emphatically that the country continues and will continue to borrow normally," he said. "We have a plan and the budget is being implemented properly and remains within its targets."

Papaconstantinou met Wednesday with a delegation of IMF inspectors to seek advice on how to speed up fiscal reforms.

But the massive spike in interest rates shows markets are still concerned and some analysts are saying a bailout or default is a matter of time.

"There can now be little doubt that Greece will have to turn to the IMF for help," said UBS currency strategist Beat Siegenthaler. With bond yields high and reports of depositors moving money out of Greek banks, "time could quickly run out," he said.

Bank of Greece figures show that in January and February, Greek corporations and households withdrew some €8.46 billion ($11.25 billion) in deposits, leaving the total at €229.5 billion ($305.14 billion) — slightly more than in February 2009.

But a central bank official said the trend was changing.

"In the past two or three weeks this tendency has been reversed ... and deposits have not been withdrawn," the official said, speaking on condition of anonymity in line with bank policy.

Under the vaguely-worded rescue plan, eurozone leaders pledged to provide support with bilateral loans and IMF funds to prevent a default and protect the euro. The loans would only come with unanimous approval of all 16 eurozone members — including Germany, which has been reluctant to bail out Greece — and only as a last resort.

European officials are reluctant to give much detail on the bailout loans. The eurozone nations also have made no decision on what interest rate they would charge Greece for individual loans from each country, saying that they will calculate the rate only when Greece requests aid.

In a March statement, eurozone leaders said interest rates could not be a form of subsidy and would have to be higher than the average charged for all euro nations "to set incentives to return to market financing as soon as possible."

Athens has repeatedly said it hopes never to have to use the plan, saying its existence should help restore market confidence and so reduce borrowing costs.

"We do not require the activation or further detailing of any mechanism," government spokesman Giorgos Petalotis said. "We wanted and still want this mechanism for one specific reason: to act as a guarantee to normalize borrowing conditions. So there is no reason to take any initiative at this point."

Deputy Finance Minister Philipos Sachinidis said the interest rate gap between Greek and German bonds would remain high "for as long as Greece continues to suffer from a credibility deficit."

But he expressed confidence that markets would respond well as the country met its targets.

"As we get results ... and meet our commitments to bring the deficit down to at least 8.7 percent in the first year and below 3 percent within the three-year period, then I assure you the markets will respond to these results," he said on Vima FM radio.
http://www.ajc.com/business/eu-plan-not-halting-444914.html

[MarketNeutral]

The Persians could not defeat Greece but they are no match against the Goldman Sach's Quant Army.

[MarketNeutral]

deleted


http://fliiby.com/images/_thumbs/me_fcvnfs0l2c1.jpg

More fitting.

[Dave Thomas]

This is dollar positive right?

[uranian]

Greek debt downrated (http://imarketnews.com/node/11554).

Greek Bond Rates Soar (http://www.nytimes.com/2010/04/09/business/global/09drachma.html?dbk)

ECB calls emergency meeting (http://www.zerohedge.com/article/going-long-weekend-ecb-calls-emergency-gc-meeting-tonight-flashbacks-paulson-and-summer-2008)

getting interesting in south europe.

[Horn]

Greek debt downrated (http://imarketnews.com/node/11554).

Greek Bond Rates Soar (http://www.nytimes.com/2010/04/09/business/global/09drachma.html?dbk)

ECB calls emergency meeting (http://www.zerohedge.com/article/going-long-weekend-ecb-calls-emergency-gc-meeting-tonight-flashbacks-paulson-and-summer-2008)

getting interesting in south europe.



I think it is a result of something even larger brewing on the horizon, is like Greece and Iceland are just being juggled around for now before some really Grand & sweeping changes come down.

[Ponce]

Remember folks that the average American only knows the dollar, even many of those who are "rich".....and by saying that I mean that you should keep a nice wad of cash handy for when the time comes for you to be able to get great bargains.

[sunshine05]

Thanks for the posts DMac. This is something to watch closely. It amazes me how quickly things are happening.

[singular_me]

this is an eye opener, the one world currency will do nada... it will make it simpler for THEM


-----------------------------------------
* April 9, 2010, 1:43 PM ET

Trichet: Some Euro Zone Countries May Need to Accept Deflation


By Brian Blackstone

European Central Bank President Jean-Claude Trichet says some countries in the euro zone might have to accept a period of deflation to restore long-term economic growth prospects.

“Some countries, to regain competitiveness, will have to keep inflation below the EU average,” Mr. Trichet told the Italian paper Il Sole 24 in an interview published Friday.

Asked by the paper whether this means “even accepting a period of deflation, with all the possible social consequences this might have?” Mr. Trichet replied: “Yes.”

“It is normal that some regions, after growing above the EMU average for some time, and after having accumulated high national inflation, experience a correction and therefore a period of negative inflation, as it is currently happening in Ireland,” Mr. Trichet said.

The ECB contends that it has avoided deflation for the euro zone as a whole, which is supported by recent data showing annual inflation in the region at about 1.5% in March, though that was probably pushed higher by energy and food prices.

Mr. Trichet was largely confirming what economists have been saying for months about deflation in some parts of Europe, though as ING Bank economist Carsten Brzeski notes: “he has never been so outspoken in the past.”

more
http://blogs.wsj.com/economics/2010/04/09/trichet-some-euro-zone-countries-may-need-to-accept-deflation/

[techguy]

Stick a fork in em... they're done.

from zerohedge....bond yields...

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/paulson/3%20Month%20Greece.jpg

[Horn]

Well it all started there 2000+ years ago...

End of western civilization wildfire ensues.

[techguy]

Well it all started there 2000+ years ago...

End of western civilization wildfire ensues.


The greeks that built western civilization have been dead for years. The inhabitants that now call themselves greek have none of that blood left in them.

They may rise up and reject the IMF and Euro... But I doubt it.

History weeps.

[uranian]

Eurogroup safety net for Greece eases borrowing costs (http://www.neurope.eu/articles/100110.php)


In a bid to keep Greece solvent and ease the pressure on the Euro currency, the 16 states which use the currency on April 11 spread out a €30-billion safety net for Athens. "I welcome the agreement by the Ministers of Finance of the Eurogroup, under the presidency of Jean-Claude Juncker, on the practical arrangements, notably financial, of the mechanism for financial support on which the principle had been agreed by the Heads of State and Government at their meetings in February and March. The agreement today makes the mechanism fully operational and will contribute decisively to the financial stability of Greece and the Eurozone,” President Herman Van Rompuy said in a statement.

The 5% price tag is well below the 7.4% charge that markets imposed on Greek 10-year bonds on 9 April, but well above the rate of 3.1% charged to Germany.

euro currently on the up, due to that German generosity. shame Kaiser isn't here to share his perspective.

[uranian]

Greece Debt Spreads Grow (http://www.thestreet.com/story/10733694/1/greece-debt-spreads-grow.html?cm_ven=GOOGLEFI)


Greek spreads continue to blow out Thursday, dragging the rest of the periphery along with them.

In absolute terms, the Greek two-year yield is nearing 10%, double what was assumed in the rescue package in terms of a sustainable debt reduction path. These are textbook emerging-market default fears being manifested in the bond markets.

EUR/USD is breaking lower as FX markets pick up on this theme from the bond markets, and a test of the March low of 1.3268 is being seen. After that, the next levels are 1.30 and 1.2886 (April 2009 low). From a longer-term perspective, the March 2009 low of 1.2457 looms ahead.

With regards to parallels with past EM debt crises, we are still in the phase where markets are testing the resolve of policy-makers with relentless selling pressure. For most EM cases in the 1990s to the present, external debt default/devaluation fears led to a combination of capital flight and speculative selling that led to a bleeding of foreign reserves and rising borrowing costs that made it impossible to continue under the existing path.

In the case of hard pegs like Argentina, a sharp economic downturn would result from shrinking foreign currency reserve and domestic money supply. Eventually, a currency peg became unviable as reserves dwindled and the economy slowed, leading to a combination of devaluation and/or default as external debt could no longer be serviced.

The decision to do so became a political choice, as governments decided that the cost/benefit analysis of maintaining a currency peg no longer warranted that peg. On the other hand, Greece is unusual in that there is no direct attack on its currency.

Servicing foreign currency debt is not the issue, but rather whether Greece can service its local currency debt without having the benefit of its own printing press (central bank). But Greece is still undergoing its cost/benefit analysis. Can it stick with the austerity being demanded by the markets in order to slash its budget deficit? We know social tensions are picking up sharply in Greece, and our EM-tinted view is that these sorts of crises rarely end up with a happy ending.

[JohnQPublic]

looks more and more likely that the € will be the first card in the fiat house to fall. gold's at a record high in €:

http://goldprice.org/charts/history/gold_1_year_o_b_eur.png?0.6814865209543914


Gold 1000 Euros coming to a continent near you soon.

[uranian]

Greece to activate EU-IMF loans (http://news.bbc.co.uk/1/hi/business/8639440.stm)


Greek Prime Minister George Papandreou has asked for activation of an EU-IMF debt rescue mechanism, to help pull the economy out of its current crisis.

It follows negotiations with eurozone nations and International Monetary Fund over the details of an emergency rescue package.

It comes a day after data showed a worse-than-expected budget deficit of 13.6% of gross domestic product.

Credit rating agency Moody's also cut its rating on Greek debt on Thursday.

'Pressure on'

The BBC economics editor Stephanie Flanders said that during the Greek crisis eurozone finance ministers had been hoping that the promise of support would be enough to reassure investors.

But that had not been the case, and our correspondent said the pressure was now on to come up with the fine detail of a deal very quickly.

She said that, with very tight economic conditions already in place in Greece, any IMF conditions attached to loans would likely be of an economic nature, such as interest rates, rather than calls for more stringent cost-cutting measures.

"Even if Greece, with this money does get through [the crisis], it is still going to hurt for sure," she added.

He said the markets had not responded positively to Greece's austerity measures.

That meant it was now a "national and pressing necessity" to access the EU-IMF aid, and that he had asked Finance Minister George Papaconstantinou to make a formal request for the loan plan's activation.

"Our partners will decisively contribute to provide Greece the safe harbour that will allow us to rebuild our ship," added Mr Papandreou.

Greece has sent a letter to the European Commission, the European Central Bank and the Eurogroup representing other Eurozone countries "formally requesting the activation of the support mechanism".

The European Commission said eurozone finance ministers would release emergency loans to Greece only after the commission and the European Cental Bank ruled that the Greek aid request was valid.

Other eurozone states and the IMF will also need to give their approval before funds are released.

Uncertainty remains

The euro rallied in late morning trade in London, up 0.1% at $1.3308.

But analysts said even though the Greek move had been expected there was still some uncertainty ahead.

"I don't necessarily think we're out of the woods here because there's a fair bit of wrangling to go in terms of how much the package is going to be, and the terms that are going to be attached to it," said Sean Maloney, an interest rate strategist at Nomura.

"I think the reaction we've seen so far is understandable but whether it extends another significant amount from here is another question."

Spending cutbacks

The loans package has been put together to help pull the eurozone member out of its debt crisis.

Greece is swamped by 300bn euros of debt and needs to borrow about 54bn euros this year alone.

In the middle of April finance ministers of the 16 eurozone nations agreed to provide up to 30bn euros (£26bn) in emergency loans for debt-hit Greece should it ask for them.

At the time they offered a three-year financing programme at interest rates of about 5%, based on IMF formulas.

Meanwhile, spending cutbacks being introduced by Athens to restore its finances are being resisted.

On Thursday, tens of thousands of Greek civil servants staged a strike to protest against the austerity programme.

Protesters have been demonstrating in Athens, not far from where officials from the IMF and European Central Bank are meeting to determine the fine details of a financial rescue package for Greece.

athens yesterday:

http://www.demotix.com/sites/default/files/imagecache/display_318xX_scaled/photos/307975.jpg http://www.demotix.com/sites/default/files/imagecache/large_652x488_scaled/photos/307971.jpg http://www.demotix.com/sites/default/files/imagecache/large_652x488_scaled/photos/307974.jpg

bets on for who is next...portugal or the UK?

[Ponce]

Anyone who still have any money in any bank worldwide deserve to kiss their money good by......keep in the bank only what you need for that month and nothing more.

[woodman]

Anyone who still have any money in any bank worldwide deserve to kiss their money good by......keep in the bank only what you need for that month and nothing more.


Absolutely. Anyone who values freedom will keep their money out of the bankers hands, it merely allows them to enslave others by printing more conterfiat.

[uranian]

Moody's downgrades nine Greek banks (http://www.marketwatch.com/story/moodys-downgrades-nine-greek-banks-2010-04-30-818140#)


Ratings agency Moody's Investors Service on Friday downgraded the bank financial strength ratings and the deposit and debt ratings of nine Greek banks. The move reflects "their weakening stand-alone financial strength and the anticipated additional pressures stemming from the country's challenged economic prospects," the agency said. Moody's said the deposit and debt ratings will remain on review for possible downgrade, which will be completed when the agency concludes its ongoing review of Greece's sovereign ratings. The move affects National Bank of Greece, EFG Eurobank Ergasias, Agricultural Bank of Greece, General Bank of Greece, Marfin Egnatia Bank and Attica Bank.

this just a couple of days after a greek banking magazine denied the validity of rumours about banks going under in greece.

[uranian]

http://2.bp.blogspot.com/_8rpY5fQK-UQ/S9WJhvxQ-wI/AAAAAAAAJU8/p2PBuKVtwQU/s1600/greek.png