S&P threatens of a Greek Default

by the trader

While the US is celebrating the 4th of July and the Liberty of the Nation, S&P is threatening of a Greek default. The Trocia roll over plan seems to be flawed, and would cause great headache for the parties involved if it fails. Bloomberg reports;

Europe’s effort to pull Greece back from the brink may be slapped with a default rating by Standard & Poor’s, exposing a critical flaw in the drive to press creditors to assume a share of the cost.

Standard & Poor’s said today a rollover plan serving as the basis for talks between investors and governments would qualify as a distressed exchange and prompt a “selective default” rating. That may leave the European Central Bank unable to accept Greek government debt as collateral, impairing the lifeline it has provided the country’s banks.

“It sends all the officials and banks back to drawing board to think something new,” said Christoph Rieger, head of fixed-income strategy at Commerzbank AG in Frankfurt. “The ECB is saying it won’t accept debt in a default. Someone needs to give in — either Germany or theratings agencies or the ECB. One of three will have to compromise.”

The S&P statement comes less than 48 hours after euro-area finance ministers authorized an 8.7 billion-euro ($12.6 billion) loan payout to Greece by mid-July and said they would aim to complete talks with banks on maintaining their Greek debt holdings within weeks.

The prospect of a default rating adds to policy makers’ concerns that Greek officials can enact the 78 billion euros of austerity measures that lawmakers passed last week as a condition of receiving further aid

If Greece defaults, as thetrader has argued is necessary, we will get the Lehman situation back. The ECB will end up in a severe liquidity crisis as the Greek bonds won’t be accepted as collateral. Further, this would of course spread to the European banks, and we would get a run on the Greek Banks. Let’s see how well designed the Troica roll over plan is. We still argue for Greece to make an Icelandic “liberty” move, drop the Euro and tell the banks, we are not paying other people’s stupidity. Then Greece could start celebrating a day of Liberty, instead of being squeezed by the Banksters.

Don’t forget, Greece’s first tranche of Aid, won’t even last until the end of August.

 
Finally, below is the Statement by the Eurogroup, on the great accomplishment of the Greek rescue, released less than 48 hours ago…..

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