Greek Tragedy: Ahead Of The Crucial Vote29 June, 2011, 4:12. Posted by Zarathustra
Tags: Austerity, Economy, Euro Crisis, Europe, Greece
The Greek parliament will be voting on the medium-term fiscal plan a.k.a. the austerity measures at 7pm Hong Kong Time or 7am New York Time. Ahead of the big vote, the Parliament is debating it, while protests outside the parliament got violent. Curiously though, the consensus now believes that the vote will pass (via Business Insider), as Thomas Robopoulos, one of the MPs who previously said he will not vote for the plan, is now making a U-turn and say that perhaps he will vote for it after all.
Before the important vote which would decide whether the Greek government will obtain the next tranche of funding, the French banks and government negotiated a weird deal of voluntarily rolling over the Greek debts as briefly mentioned earlier. The French banks will be rolling over only part of the debts. In essence, out of every €100 of debt maturing in the next three years, French banks will immediately get €30 back, while the rest of €70 will be separated into two parts: €50 of that will be rolled over into 30-year Greek debts at probably 5.5%, while €20 of that will be invested in the bonds issued by European Financial Stability Facility (EFSF).
It sounds like a nice plan in some ways, as the banks can get €30 out of every €100 immediately, while the other €20 of them will be invested in AAA-rated securities, guaranteed jointly by other European countries, so the exposure would be cut immediately to half. But that will be contingent on not invoking the dreaded D word (i.e. default) from rating agencies according to Bloomberg, but Fitch reiterated that it will be likely to treat such thing as a default anyway. So it is, after all, pretty pointless if their ultimate goal is to avoid the dreaded D word.
For whatever reasons, the markets seem to think that everything will be all right. Perhaps it will, for now. Or will it? The rollover, even if it does come through, will likely be treated as selective default, and the eventual default is simply inevitable. While the default will probably be not as disorderly as people feared, we seems to be having a huge expectation of the crucial vote now. Investors will then have to be aware of the wisdom of “buy on rumour, sell on the fact”, as we saw in the market reaction to the confidence vote.