While the US was panicking over a double zero jobs report, things in Europe just fell off a cliff. As both the WSJ and Reuters report, it seems that the second Greek bailout, following repeated and consistent disappointments by Greece which has resolutely refused to comply with the terms of its fiscal austerity program, has just collapsed.And with the US closed on Monday: long a counterbalance to European risk pessimism, this week (especially with the news fro the latest FHFA onslaught against global banks) may just be the one that “it” all comes to a head. But back to Europe, and more specifically Greece, which it now appears is doomed. “I expect a hard default definitely before March, maybe this year, and it
could come with this program review,” said a senior IMF economist who is keeping close tabs on the situation. “The chances for a second program are slim.” It is not only Greece – Italy also thought it would sneak by with getting quid pro no and continue leeching off of Europe, or specifically Germany, indefinitely, at least until the ECB said that absent Berlusconi taking austerity seriously that implicit ECB support for Italian bonds would be yanked, sending the second most indebted country in the world into a toxic debt tailspin. And so it comes that after 2 years of waffling, Europe finally realizes that the piper always eventually gets paid. Alas, it is now far too late.
Will it be bridged in mid-September, and is a market and EURUSD crash all that will take, as has been the case constantly? We will find out soon, although it increasingly appears improbable…
It gets worse: as Reuters confirms, the political turmoil has already spread to Germany, where all that is needed for wholesale conflagration that will sweep Merkel out of the cabinet is a tiny spark. This may just have been it:
Alas, a Greek departure from the Eurozone, which now seems inevitable, will have a major impact on Europe’s financial institutions. This is, however, not news to the market, which over the past few days, has sent not only the Libor-OIS spread to 70.6 bps (up 5bps overnight), or its widest level since April 2009, but has pushed Libor higher for 28 consecutive days – the longest stretch sine 2005, to its highest since August 19, 2010. Furthermore, the spread between the minimum and maximum 3 month USD Libor as self-reported to the British Banker Association, has hit a 2011 wide.
So is the worst bank some derelict husk of toxic assets like Barclays and RBS? Yes… RBS is certainly #2 in the top three highest reported Libors, or institutions that find it most difficult to procure USD funding. So who are the other two most troubled banks: SocGen? BNP? Bank of America? Nope…
That’s right: CSFB and UBS. It appears that in a parody of Biblical allegory, the first shall indeed be last, as what was once a bastion of liquidity and solvency, Switzerland and its indomitable banks, is the first to topple should Greece finally be kicked out.
And should the two biggest Swiss indeed banks go out with either a bang or a whimper, then, well, all bets are off.
Source: Zero Hedge, September 4 2011
Game Over? Senior IMF Official – “I Expect A Hard Greek Default This Year”