I’m still somewhat perplexed by how the euro fell nearly a cent and risk appetite evaporated after this story in the FT. There’s almost nothing new there.
Part of the story were reported here on Friday –
Greek Finance Minister Evangelos Venizelos was quoted by two newspapers as saying an orderly default with a 50 percent haircut for bondholders was one of three possible scenarios.
Senior Greek officials said privately that some official creditors believed that bondholders should double the 21 per cent writedown they would be required to make under the July deal.
And much of it around Sept. 14 after Stark resigned
reports emerged that German finance minister Wolfgang Schauble has activated “Plan B”, under which German banks and insurance companies have been instructed to prepare for 50% haircuts on Greek debt as Greece is allowed to default.
Even in June, Germany was pushing for harsher terms for the private sector before compromising with the French plan leading to the July 21 agreement including a 21% haircut (via voluntary debt swap). Since then, things have deteriorated significantly in Greece and the eurozone so it’s no surprise Germany and others are asking for more.
Today’s FT story even acknowledges this:
Berlin has long wanted bondholders to make a bigger contribution to a new bail-out, a point reiterated publicly in recent days by Wolfgang Schäuble, Germany’s finance minister.
Others, including Austria’s finmin said a haircut was the last option but what’s really new here? The only thing I can find is the line that “as many as seven” of the 17 eurozone members are arguing for more writedowns. It shows that Germany has some backing, but it doesn’t matter anyway because Germany is the one with the money.
The current risk rally will be reversed but this isn’t the headline to do it. The only takeaway here is that the market is extremely jumpy regarding bailout headlines.