MARKETS DIVE AS FRANKFURT THREATENS GREEKS IF DEBT RESTRUCTURE FAILS

Question must be asked: is this an anti-ECB power play by Bankfurt?

(Updated 17.45 GMT)

At 15.18 GMT today (Tuesday), text of minutes relating to a meeting with senior Frankfurt bankers was released by the Greek Finance Ministry. Complicated, but potentially sensational, the text  (my highlights +emphasis) includes this extract:

‘The Republic’s representative noted that Greece’s economic programme does not contemplate the availability of funds to make payments to private sector creditors that decline to participate in PSI. Finally, the Republic’s representative noted that if PSI is not successfully completed, the official sector will not finance Greece’s economic programme and Greece will need to restructure its debt (including guaranteed bonds governed by Greek law) on different terms that will not include co-financing, the delivery of EFSF notes, GDP-linked securities or the submission to English law...’

This clearly gives the sense of German bankers declaring that IF THE ACCEPTANCE LEVEL FALLS BELOW 66%, it will be deemed to be, not just a failure, but that it’s the end of the road for bailout. I have to assume that ‘official sector’ means all central banks and sovereign holders. But the core point in this extract – it seems to me – is that a new element is being introduced: wind up with a full-blown default accompanied by inability to use CACs, and we will NOT deliver EFSF funds.

One is left wondering why the meeting with Bankfurters took place at all. Given the evidence from Der Spiegel this morning that a full-scale battle is now on about the German bankers and Draghi’s ECB, The Slog also finds it difficult NOT to see this as a Bundesbank power-play.

I have to wonder why the Greeks released the minutes at this particularly sensitive moment. Presumably, they wanted to make it clear to the Hedge Funds that holding out would get them nowhere. In the time since then, the FT has also quoted ‘a person close to the deal’ saying that Hedge Funds “…need to realise that they don’t have a free option here.”  I am bound to observe that, at this stage of the game, that strikes me as a naive observation: the Hedgies know exactly what they’re doing – and the IIF plus Athens are engaged in obvious dissembling about what proportion of the bondholder universe has accepted.

In reply to a confused Slogger via email, I sent this about 90 minutes ago:

‘Sometimes one has to trust one’s own instincts. Note that:
1. The Telegraph includes the German banker info, the Grauniad doesn’t.
2. Bloomberg & Zero Hedge both agree IIF holding is only 20%.
3. Dow Jones ‘crunched numbers’ to get to 75-80% take-up. How did they do that? They don’t know HF levels any better than I do.
4. 66% is the level at which they CAN’T use CACs. I need to dig in Frankfurt, but my gut feeling is that this is what the Bankfurters were saying to them…you’re not gonna get 66%, that would be an incomplete deal, and we will pull the plug.
5. I’m the only one saying this. Joking apart, 9/10 occasions that is usually a sure sign I’m right.
6. My wealth managers agree.
7. The markets are anticipating it.’

Major stock  markets and banking sectors in France, the UK and Germany did in fact fall badly this afternoon, so I have to assume that they see things in a similar light. The CAC 40 in Paris has now fallen 3%. French banks are leading the falls.Credit Agricole is down 6.3%, Societe Generale has plunged 6%, as has BNP Paribas. In Germany, Commerzbank is the biggest loser, down 6.5% at €1.776.

I contacted a respected UK wealth management company late this pm, and they too concurred that a serious default (of the type mentioned in the Greek Finance Ministry release) is now much more likely.

So: same old same old sign-off line: this deal will not make it to the tape.