When is a deal not a deal?

WHEN….

1. it’s a default

2. there’s no real agreement

3. there are poison pills

4. there are very high hurdles to jump

5. there are loose ends all over the place

6. all-powerful forces don’t want a deal in the first place

1. Reading the deal’s main points this morning, although the ECB has made a reasonable fist of complicating its subordination of the private bondholders – money out, profits redistributed, local central banks reinvesting and so forth – it remains a preferential deal done outside this so-called ‘bailout with PSI’. The IIF creditors have sort of voluntarily taken the extra 3.5% hit, but the coupon they’ve been offered is worth less than the original. In a statement issued by representatives of private bondholders, the new interest rates – 2% for the first three years, 3% for the next five, and 4.2% thereafter (this is the scheme revealed by The Slog three weeks ago) were described as “well below market rates”, and the creditors will lose money on them. The tone of the statement screams ‘involuntary’. In English, all these factors spell default.

2. Nobody has actually signed up to anything yet: as usual with all things EuroZen, the bankers are alleged to be on-board, but the IIF statement made after the press conference suggests otherwise: ‘We recommend all investors carefully consider the proposed offer, in that it is broadly consistent with the October agreement’. That’s not true for one thing: but as a recommendation, it’s somewhat limp. Further, there is still a body of hardline ezone sovereigns who don’t want to do the deal – and in Germany itself, a growing rearguard campaign to stop it. (See this morning’s Spiegel for immediate evidence). And finally, most Greek citizens themselves will react violently to some of the more pernicious clauses.

3. The ‘agreement’ contains almost a full bottle of poison pills: Berlin has got its debt Gauleiters in the end, only 19 cents on the euro will go to the Greek Government itself, 325 million euros in additional spending cuts have been found, Athens has agreed to change its constitution to make debt repayment the top priority in government spending, the escrow account must have three months debt money in it at all times etc etc. The idea that Greece can now toddle off and have a liberal democratic general election without any of these being issues is Brussels space-cadet stuff at its most tragi-comic. (An opinion poll taken just before the Brussels deal showed that support for the two Greek parties backing the rescue package had fallen to an all-time low while leftist, anti-bailout parties showed gains.)

4. Several Grand National leaps lie ahead before the default is avoided. Parliaments in three countries that have been most critical of Greece’s second bailout – Germany, the Netherlands and Finland – must now approve the package. In Greece itself, further violence will test political resolve about yet more cuts in wages, pensions and jobs. Greece’s two biggest labour unions have already lined up protests  in the capital tomorrow. Very significantly, Jean-Claude Juncker of Luxembourg and the IMF’s Christine Lagarde stressed at the press conference that Greece still had to live up to a series of “prior actions” by the end of the month before eurozone governments or the IMF can sign off on the new programme. If ever I saw a get-out clause, that’s it.

5. Other loose ends are left hanging everywhere. Nobody has elicitied any response so far from the Hedge Fund creditors. Entirely absent from comments was  the IMF’s contribution to the €130bn bail-out. Christine Lagarde would say only that the contribution would be ‘significant’, but my information is that she’s lying through her $240,000 teeth as usual: the IMF will only contribute €13bn to the  in new Greek funding. Not exactly a resounding vote of confidence for the deal. Juncker said he was optimistic that ezone members would cough up more cash at the EU summit in March, but this too simply doesn’t bear examination: Portugal is broke, Spain is technically insolvent, Italy has asked to be excused from this dance, and Germany has already shown extreme reluctance to to increase its exposure further still. Fritz Schmidt in dem Strasse isn’t too keen either. Finally, as Bruno Waterfield notes in his latest column at the London Daily Telegraph, the agreement remains ‘overshadowed by the pessimistic debt sustainability report compiled by the IMF, ECB and Commission, that warned of a “downside scenario” of Greek debt hitting 160 per cent of GDP in 2020 – far higher that the agreed 120.5 per cent target’.

6. This is where we get to what the MSM will largely dismiss as ‘conspiracy theory’….but for which the circumstantial and corroborative evidence gets increasingly compelling: whole crowd-scenes of actors off-stage (and several on it) simply do not want this deal to reach fruition: they have factored in a Greek default, and believe that the best way to avoid further debt-crisis contagion is for the money earmarked for bailouts to be invested in bank-propping and growth.

The cast of players who think this include David Cameron, Mario Monti, Mario Draghi, Wolfgang Schauble and most of the German Finance ministry, Christine Lagarde, probably Angela Markel herself, Tim Geithner, huge swathes of the German banking community, The White House – and elements in both Beijing and Tokyo.

I understand that the Sino-Japanese response to a switching of EU funds emphasis from bailout to growth stimulation might well attract funds from that quarter. In fact, there is a global shift of opinion now away from austerity: it having killed the Hellenic patient, the Alchemists in Berlin and the IMF are an increasingly small minority. This won’t stop the Berlin Blinker Blitzkrieg, but it is changing the actions of legislators and lenders everywhere.

Certainly, my New York source was unrepentant late last night EST. The response was brief and lucid: “If you launch a seagoing sieve, it’ll never leave harbour. No deal has been done, and no bailout will occur. The March default is still on track.”

That’s sticking your neck out, but the informant’s track-record in other areas has been impressive. I’m inclined to agree with the conclusion – as indeed was the Bankfurt Maulwurf this morning.

“Well, it’s the usual formula,” he observed, “But I am reassured that Germany’s commitments are now effectively limited. Like all the other deals made by these people, it will collapse….perhaps within days. Or things will develop in Portugal, and then people will get a clearer perspective and the insanity will end. I can certainly tell you there will be consequences for the Chancellor if it doesn’t”.

I did suggest vigorously to Maulie that he was wrong about Schauble and his Ministry ‘not being involved’ in the Greek default timetable.

“I wasn’t wrong,” he purred, “You simply asked the wrong question.”

The Bankfurt Maulwurf is, as we established some time ago, anti-Merkel and hawkishly anti-integrationist. I have no way of knowing if he represents a small lunatic fringe or a broadly based group of senior financial opinion leaders in Germany. The bloke’s background and achievements suggests he’s not that fringe or lunatic. But then, since when did sanity have anything to do with any of this?

As always, we shall see.