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Saturday, April 25, 2015 10:20 PM


Greece Boils Over; No Rules, Just Right; German Rabbits


The inevitable in Greece gets closer and closer. Looking back, I wonder how many rabbits in the hat there were. More importantly, how many still remain?

I believe the answer to the latter question is zero.

Yet, I also point out the propensity of German chancellor Angela Merkel to prolong the "not on my watch" inevitable. Meanwhile, the pot has is far more advanced than "simmering".

Greece Boils Over

The Financial Times reports EU Frustration Over Greece Boils Over at Eurogroup Meeting.

Months of mounting tensions between Greece and its creditors boiled over at a high-level EU meeting on Friday with eurozone finance ministers angrily accusing their Greek counterpart of backtracking on commitments and failing to grasp the deep differences that still divide them.

Athens is running desperately short of cash and many eurozone officials fear that, without an agreement to release some of the remaining €7.2bn in its bailout programme, the government could default as early as mid-May.

Eurozone officials briefed on the closed-door, three-hour meeting said Yanis Varoufakis, the Greek finance minister, specifically warned that cash was so tight that government coffers might run dry in a matter of weeks.

The antagonism between Mr Varoufakis and other ministers became so severe during the eurogroup session that Slovenia’s finance minister suggested if bailout talks did not progress more quickly the eurozone should prepare a “Plan B” to deal with a Greek default.

The contentious session undermined claims by Greek officials that a Thursday meeting in Brussels between Alexis Tsipras, the Greek prime minister, and Angela Merkel, his German counterpart, had narrowed the differences. The claims briefly sent the euro rallying in morning trading, but those gains evaporated after news of the differences emerged.
Default Necessary but Grexit Not?

Financial Times writer Wolfgang Münchau says Default Necessary but Grexit Not.
Until last week, discussions with Greece did not go well. That changed when the circus of international financial diplomacy moved to Washington for the spring meetings of the International Monetary Fund and the World Bank. Then it became worse.

My hunch is that this show will go on for quite a while. The Greeks want to merge the talks on the extension of the current, second, loan programme with the talks on the new third one. For that to work they will require temporary bridging finance to get through the summer. This sounds like somebody has a plan. But this is not my impression. I have never seen European finance officials so much at a loss.

The big question — whether Greece will leave the eurozone or not — remains unanswerable. But I am now fairly certain it will default.

My understanding is that some eurozone officials are at least contemplating the possibility of a Greek default but without Grexit. The complexity is severe, and they may not have had the time to work it out. But it may be the only way to avert utter disaster.

On whom could, or should, Greece default? It could default on its citizens by not paying public-sector wages or pensions. That would be morally repugnant and politically suicidal for the Syriza-led government. In theory, it could default on the two loans it received from its EU partners, though it is not due to start repaying the first of those until 2020, and the second in 2023. It could also default on the remaining private-sector bondholders but that would not be a good idea. Greece might need private sector investors later.

It could also default on the IMF and the European Central Bank. The IMF is expecting a series of repayments. The ECB wants its money back in the next few months on debt it holds on its books. Defaulting on the IMF and ECB is the only option that would bring genuine financial relief in the short term. Nobody has ever done that. It might trigger Grexit.

Then again, it might not. Default is not synonymous with exit. There is no EU ruling that says you have to leave the eurozone when you default on your debt.
No Rules, Just Right

There is no "rule" that says "Default is synonymous with exit".

There is common sense. If Greece does not run a primary account surplus (ability to meet funding needs except for debt interest and debt repayments), then how the hell is Greece going to meet those needs?

IMF? US? Russia? ECB? Man in the Moon?

The answers are no, no, no, no, and no.

In French, it's non, non, non, non, et non.

German Rabbits

All that's left is a rabbit in German hat.
Or not.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Friday, April 24, 2015 9:26 PM


New Problem, Old Tracks


The San Francisco Bay Area Region Transportation system (BART) has a major problem: aging tracks that border on unsafe.

The San Francisco Chronicle details the problem in BART has New Problem: Old Tracks.

The nearly half-century-old system needs to replace its worn steel rails and cross ties. The problem has produced derailments, a drop in train speed in several trouble spots, and a repair schedule that will close the tracks in Oakland over an estimated 11 weekends.

Track maintenance is nothing new for transit systems as equipment and track wear out. But the scale of the problem and BART’s essential role in carting nearly 400,000 daily riders to work, school and appointments make the task important. It’s imperative that the system focus on improving service as quickly as it can — or risk public concerns about safety and reliability.
Rail Refresher Solution

The following video sent by reader Justin is the exact solution. Meet the "Rail Refresher"



That is one of the most amazing pieces of equipment I have ever seen.
How many workers will it replace?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

1:32 PM


ECB Buys Negative Yield Covered Bonds; Trade Guaranteed to Blow Up


In a move 100% guaranteed to blow up at a later date, the ECB Said to Start Buying Covered Bonds With Negative Yields.

The European Central Bank started buying covered bonds with negative yields as its asset-purchase program reduces the supply of the highly rated debt, according to two people familiar with the matter.

The central bank bought the debt in the past two weeks, said the people, who asked not to be identified because the information is private. The notes were from Germany, one of the people said.

The ECB has bought 69.7 billion euros ($75.5 billion) of covered bonds since October as part of its latest measures designed to stimulus growth in the euro area. The accumulation of assets is driving down yields and the central bank now holds about 15 percent of the market, according to ABN Amro Bank NV.

“The ECB has caused this situation by being a big buyer and has exacerbated the already negative net supply of covered bonds,” said Joost Beaumont, a fixed-income strategist at ABN Amro in Amsterdam. “If the ECB buys more, yields will go still lower and that’s going to affect the ECB itself.”

The ECB, which is also buying government bonds and asset-backed debt, has said it will buy negative-yielding securities up to its cash deposit rate of minus 0.2 percent.

An ECB spokesman declined to comment on its covered debt purchases.

“Supply in positive yields is getting scarce and the ECB may have no other choice to fulfill its targeted purchase volume than to buy negative-yielding bonds,” said Tobias Meyer, an analyst at Norddeutsche Landesbank in Hanover, Germany.
Trade Guaranteed to Blow Up

I agree with Beaumont's comment this is "going to affect the ECB itself".

In fact I will go one further and suggest this is a "trade guaranteed to blow up", I just cannot say when or even in precisely what ways.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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