The main points of the agreement:
- EFSF to be leveraged 4x - 5x bringing its total firepower to 1.4 trillion
- Banks to take a [voluntary] 50% haircut (estimated to amount to ~100 bln) on their Greek debt holdings.
Apparently, the term 'voluntary' has a different meaning in Euro-speak.
- EU banks will have to raise 147 bln of extra capital
In sum the doctors have prescribed more debt as a cure for excessive existing debt.
The EFSF will borrow money (issue debt) to purchase PIIGS debt. Euro-zone countries will have to issue more debt to give over-indebted Greece 130 bln. And countries will have to issue even more debt to recapitalize banks who just agreed to take a loss of 100 bln (50% haircut) in Greek debt.
The Euro rallied ~95 pips following the announcement, thereafter giving back half those gains as investors are left wondering what to make of all this card shuffling of debt.
Tomorrow, Sarkozy plans to phone China to entice them into entering this debt pyramid. Does he have the charm to pull it off? He sweet-talked Bruni into marriage, so I suppose anything is possible...
What will happen when the US defaults on the Treasuries China is holding onto with dear life?!
ReplyDeleteBruni will just have to turn a few 'tricks' to bail out china who will then bail out Greece who, having all of Germany's money, will turn around and bailout Germany :)
ReplyDeleteI think "voluntary" means they waive the right to exercise the credit default insurance
ReplyDeleteSarkozy "...comrade; buy worthless Euro paper or watch Euro contagion collapse the US paper market, leaving China with worthless US paper and no US market"
ReplyDeleteeasy sell