The strategy of using the Irish Central Bank to provide emergency equity injections via electronic printing for its under capitalized banks, has been replicated in Greece this last week, with the announcement that Greece was activating an emergency funding vehicle for its banks.
This would be the second bailed out nation, which had to resort to E printing of non-existent capital, to plug holes in the balance sheets of the domestic banks. The lack of real capital is becoming obvious to all of the players involved, including the average citizen on the street these days. The run on deposits in the Greek banking system continues.
Liquidity is becoming nonexistent, and has to be provided by central banks now. Banks no longer want to do business with each other, and want to use their CB for their liquidity providers.
“The ELA has already been activated through the Bank of Greece. All small, medium and large banks (except for National Bank of Greece) have stated they will participate, in order to be able to draw funds if and when they need them,” Imerisia wrote without mentionning its source.
The latest bail out of a bailout is already in a weakened condition, as the bench markets for austerity include estimated growth targets that are unreachable. The miss at fiscal targets will impact GDP targets.
“If we fully and systematically implement the (austerity) measures already agreed and voted, we will be very close to our fiscal target and change the climate,” Finance Minister Evangelos Venizelos told lawmakers. “I am not saying that we will definitely post positive growth, but recession will subside drastically, creating a whole new situation,” he added.
The reality of the situation is that if Greece buys in some of its debt, during the exchange process, its own banks will be damaged. The Greece solution is to have exisiting funding sources replentish their banks.
“Any losses will be replenished from the existing (support) mechanism,” Finance Minister Evangelos Venizelos told lawmakers.
Greece is setting the stage for its orderly default. On Friday, the country said that it would not go ahead with its debt swaps, which make up the core of its second bailout, if the private sector refuses to participate at a minimum of 90%.
“If these thresholds (or either of them) are not met, Greece shall not proceed with any portion of the transaction described in this letter if it determines, in consultation with the official sector, that the total contribution of private sector creditors towards the financing needs of Greece and Greece’s debt sustainability resulting from this transaction is insufficient to permit the official sector to support the new multi-year adjustment programme for Greece announced on July, 2011,” the letter said.
The Greek drama continues to dissolve into a cross between a farce and a tragedy. The lack of working strategy’s on anyone part is becoming clear. It has become my expectation that the upcoming *REAL* Euro crisis is now unavoidable. What happens next is painfully obvious. The current leadership in Europe & the US is not up to the job at hand. The system is going experience a real liquidity draining event, as US banks attempt to extract their MMF from exposure to Euro bank balance sheets. The Giant Sucking sound is going to be American cash fleeing the Continent.
The final scene of Act 1 arrives…
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