As I had previously noted HERE, here and more recently HERE, It turns out I might have been correct for once. I have been
speculating that the delays seen in the Geek Debt crisis resolution efforts
was merely a front to plan for a controlled default scenario in which Greece
would be allowed to default and that the meetings were more about how to do this
with as little ripple effect to other Euro nations. I have been warning since
the onset of this crisis that a default would be inevitable. The precedent
has been set for the other troubled Euro nations. let’s
see what the ripple effects of this plan, if it passes, will be.
According to Reuters, the new proposal would allow Greece to default.
Europe is willing to let Greece default under a crisis response that would involve a bond buyback, a debt
swap but no new tax on banks, EU sources said as euro zone leaders began a
crucial emergency summit on Thursday.
A draft summit statement obtained by Reuters showed
leaders were also considering a sweeping expansion of the role of their
European Financial Stability Facility (EFSF) rescue fund to help states
sooner, recapitalize banks and intervene in the bond market in a drive to
German Chancellor Angela Merkel and French President
Nicolas Sarkozy crafted a common position on a second Greek bailout in late night talks in Berlin with European Central Bank (ECB)
President Jean-Claude Trichet, who appears to have reversed the bank's
Minds have been concentrated by the danger that
Europe's debt crisis could engulf the much bigger economies of Spain and
Italy. Greece, Portugal and Ireland have already succumbed.
"I expect we will be able to seal a new Greece
program. This is an important signal. And with this program we want to grasp
the problems by their root," Merkel told reporters on arrival in
"The demand to prevent a selective default has
been removed," he told the Dutch parliament. The chairman of the
17-nation currency area's finance ministers, Jean-Claude Juncker, also told
reporters: "You can never exclude such a possibility, but everything
should be done to avoid it."
According to draft summit conclusions, the
maturities on euro zone rescue loans to assisted countries would be extended
to 15 years from 7.5, and the interest rate cut to around 3.5 percent from
between 4.5 and 5.8 percent currently.
The EFSF would be able to lend to states on a
precautionary basis, instead of waiting until they are shut out of market
funding, and to recapitalize banks via loans to governments, even if they are
not under an EU/International Monetary Fund assistance program.
The EFSF would also be allowed for the first time to
intervene in secondary bond markets, depending on ECB input, the draft
Germany blocked all these measures when the European
Commission proposed them back in February, at a time when the crisis was less
acute, EU sources said.
Euro zone sources said a buyback of discounted Greek
bonds to help reduce Athens' crippling debt pile was seen as the most
promising way of making private investors contribute to the cost of a second
German government and financial sources said the ECB
would accept a selective default as part of a resolution of the country's
debt woes through a bond buyback.
One source said the Franco-German agreement had
Trichet's blessing. "You should assume that there will not be a banking
tax," the source told Reuters.
Comment: This does nothing to improve the poor
underlying fundamentals within Europe. All it does is, once again, brush the
Greek problem aside. Can we use the ‘kicking the can’ term again?
Because I’m really getting tired of that phrase. Then again, is there a
better way to describe what these European leaders are doing?