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Wednesday, February 8

8th Feb - ECB, Bottoms Up!

I found some thoughts on the still unconfirmed and detail-poor plan from the ECB to "participate" in restructuring of the Greek debt. Here I summarize what I've seen and what I think:

It is up to the markets to decide how good or bad it is that the ECB lowers itself from superseniority to just "occasionally somewhat more senior than others". The markets could see this as a positive, as less seniority among debt holders will make other haircuts less painful to private investors. Under the ECB's superseniority, any bond purchases (=SMP) would actually weaken private holders' future position in possible restructurings, and thus render the SMP useless - or even harmful. 

I believe the best that the ECB could do right now is to come up with clear pledge of how it will handle the SMP positions in any possible haircuts. This could get tricky, as announcing a policy now would signal that there will be other haircuts, and politically it would be very hard to do. Let me quote one of my favorite Finnish sayings: 
When the shit is already in the pants, it is useless to continue squeezing it in
Markets already know that Portugal, and possibly Ireland and Spain are in for a haircut, either directly or indirectly. The haircuts are already in the 'pants' (market prices) and it is just stupid posturing to say or think anything else. It would be better for the ECB to show some leadership now, and not wait (again) until it has no other choice. A more proactive, communicative approach would be more thank welcome. Or are the leaders just trying to keep Sarkozy in the office, and hope to postpone reality for few more weeks? Is the whole Europe just the most expensive re-election campaign in the history of the world? 

If you fancy peasant-like Finnish sayings, you can find another in my old post from 15-Oct. You can follow me on Twitter or Facebook and email me for suggestions and requests. I also have an automated publication based on feeds I follow at

News – BTH
Markets – BTH
Recap GMT

Debt crisis: live – The Telegraph
Europe Crisis Tracker – WSJ
Tracking Europe’s Debt Crisis – NYT

Merkel’s Desperate And Risky Gamble Testosterone Pit
With her intervention in the French election, Merkel has created the impression that preventing Hollande from becoming president has morphed into a government policy, and it doesn’t necessarily enhance Germany’s image abroad.

European Economics: Greece, the euro and the ECB (3-Nov)Credit Suisse (pdf)
Notice the bank run on private sector deposits in PIIGS vs. the rush of money to core.

Goldman Explains Why The Market Has Gotten Ahead Of Itself In Its European Optimism Again ZH
Reasons for managing our recommendations more cautiously, linked to Euro area sovereign uncertainties and the likely balance of risks around the ECB’s policy stance vs. market expectations.

Could the Germans Survive a Crisis like Greece's? – Spiegel
Time is running out for the Greek government, which needs to reach a deal on unpopular austerity measures if it is to secure a second EU/IMF bailout. German commentators argue the country has already suffered enough, saying what are needed now are measures to stimulate growth.

The “Grexit” taboo has been broken De Volkskrant / presseurop
At a time when Athens is still involved in debt restructuring negotiations with its private creditors, Neelie Kroes’ recent allusions to a Greek exit from the euro are a sign that European leaders are intent on preparing the terrain for such an eventuality.

Why we’ve had enough of Greece El Mundo / presseurop
The game has gone on for nearly two years: Athens pretends to comply with the demands of its creditors and partners, and they pretend to believe in Greece’s commitments. As the spectre of default comes nearer, however, the Greek bluff cannot go on much longer, writes an El Mundo editorialist.

Greek funny money alphaville / FT
UBS talks about introducing quasi-money, as the country is out of cash for anything, including VAT rebates.

Barclays’s Callow Says Progress on Greece ‘Frustrating’ – BB (mp3)
SocGen’s Galy Says Investors Chasing Yields in EuropeBB (mp3)
Deutsche Bank’s Mayer Says Greece Has 3 Days Left – BB (mp3)

Greece’s biggest holdout, dealt with? [updated] alphaville / FT
Some equality among creditors is better than none. But what happens to the debt after it is placed to EFSF?

The ECB's Scary Carry Trade, Or How The ECB Will Forego Greek Bond... PROFITS?Peter Tchir / ZH
ECB has no “profits”, they are not giving up anything.

ECB not taking haircuts leads to deeper haircuts among private investors and makes investors wary of risky bonds because of possible SMP. ECB’s announcement to write down its bonds sends a strong supportive signal.

Risk Off As ECB Says Rumor Is Actually Not FactZH
ECB contribution not yet decided, sources said

ECB and BOE meeting previews Saxo Bank
BoE: 50% chance of £50bn QE, ECB: rates on hold to leave room for one emergency drop

Goldman Conducts Poll On Latest European Deus Ex, Finds Respondents Expect €680Bn LTRO Take UpZH
Nice charts and survey quotes from the GS note.

ECB Preview Danske Bank (pdf)
ECB on hold until the effects of the second LTRO on 29-Feb are seen, expect the Greek bond holdings not to be mentioned in the announcement but surely asked about in the Q&A press session.
Safe by fiat Deus Ex Macchiatto
The relative attractiveness of safe assets can therefore rise in three ways: more safe savings looking for a home; a higher volume of securitized financing needs; or ‘some of the privately produced safe assets disappear’. All of these deserve policy action.

Dystopia — safe assets edition alphaville / FT
BarCap: the scarcity of safe assets is getting easier, but even if Fed released all its Treasury holdings to markets by 2016, ratio of safe assets / GDP would increase by 1%.

Overplaying the role of haircuts in the crisis alphaville / FT
ICMA’s European Repo Council suggests that having haircuts is not that dangerous. Link to the report in the post.

European repo has been contained! alphaville / FT
Icap’s weekly report shows Italian repo rates are back to relatively normal levels, and so are the German ones. The next improvement would be an increase in German repo volume (meaning hoarding top quality collateral would have stopped).
In Data Deluge, Multitaskers Go to MultiscreensNYT

Money, like hat-wearing, depends on convention, not laws John Kay
Interesting article on the Scottish pound and more.