Aha! Today The ECB Announces The Real Greek Bailout, And It's The Nuclear Option

The Business Insider ^ | 5-3-2010 | Joe Weisenthal

[blam]

Aha! Today The ECB Announces The Real Greek Bailout, And It's The Nuclear Option

Joe Weisenthal
May. 3, 2010, 5:51 AM

This weekend we got details of an EU/IMF bailout agreement for Greece that basically involves big loans in exchange for big tax hikes and government spending cuts.

The market was not all that impressed. The euro, after perking up initially, promptly resumed its slide.

However this news is a much bigger deal.

According to Bloomberg, the European Central Bank has announced the indefinite suspension of Greek collateral limits--meaning, basically, that banks can use Greek debt of any quality as collateral in exchange for central bank liquidity. The ECB says it's making the move in conjunction with the other bailout measures.

This move is what some have referred to as the ECB's "nuclear option," and it should take some pressure off the banks who might have otherwise been liquidating.

As Edward Harrison joked on Twitter, the ECB has, in one fell swoop, just made all the ratings agencies irrelevant.

[snip]

[GeronL]

The Tax Hikes will hurt the local economy, even if drastically lower wages and stuff would have encouraged exports and tourism.

[DownInFlames]

That is pretty rich, using debt as collateral. Just wait until that debt is worthless.

[blam]

Gold Going Nuts Again, Threatening To Take Out All-Time Highs

[Dr. Sivana]

This kind of bailout scaled to the U.S. would equal close to 4 TRILLION dollars. Unbelievable, and it was more than just Olympic expenses.

[Bean Counter]

Does any of this have to be approved by any agency of the Greek Government, other than the Greek President??

Do any of these measures have to be approved by the Greeks in a Public vote??

Unless the Greek people are willing to go along with the "austerity" measures and massive cuts in government spending, primarily on those same Greek people, I do not see how any of this can work out, nuclear or not....in any case "nuclear" is the wrong term to use in conjunction with anything "Greek" these days.

I think Greece's communist populace and their near-worthless economy is headed hell-bent back to the days of the oar powered galley,...long before the term "nuclear" was even imagined...

[NVDave]

What the Greeks vote for doesn’t really matter.

The German parliament has to vote in favor of the biggest chunk of the bailout.... and the voters are *pissed*. Merkel’s about-face on this issue has Germans really, really pissed off.

Next weekend, there are elections in North Rhine-Westphalia, which could scuttle her coalition in the upper house of parliament.

And even if the Germans *do* vote for this bailout, there’s already people lining up, EU constitution in hand, to sue over the issue.

[NVDave]

Unfortunately, our Federal Reserve is doing the exact same thing.

[Bean Counter]

I think you’re exactly right about the Germans on this as well, but I would still like to know if the Greeks have to vote on this too. If they don’t agree to the terms, then the Germans are off the hook...

[Pearls Before Swine]

That is pretty rich, using debt as collateral.

No, its standard practice, as one man's debt is another man's asset. The problem is using them as collateral at 100% of face value. That's like what the Fed did in buying up mortgage backed securities. It provided liquidity, but it overpaid, which comes out of the common pocket. Same thing here.

[Buckeye McFrog]

Whatever conditions are put on the Greeks will never be met.
There will be strikes, shutdowns, chaos in the streets.

[NVDave]

I dug around to find mention of any Greek requirement to vote on it - and finally found it. The package will be presented to the Greek parliament on Tuesday, for a vote “within three days.”

The unions are already calling for a general strike on Wednesday - private and public sector unions, as well as students, etc. I’m sure you’ve seen this drill before... well, here it comes again. There’s a chance that the Greeks don’t go for it, but I think it is a very small chance. They really don’t have any other options in front of them - other than leaving the Euro. And all the elite of Europe are brainwashed and bamboozled into thinking that the Euro is “the only way forward.” If the Greeks had their own currency, they could inflate their way out of this, increase exports, etc, and cushion the pain. But in the Euro straightjacket, they have to hack-n-slash their deficit to come within line, or else just default.

[SouthTexas]

The US has an unlimited supply of paper and ink. Why don’t we just buy Greece?

[fatez]

they could inflate their way out of this, increase exports, etc, and cushion the pain.

They really cannot export their way out of this by going to a new drachma. The problem is Greece only has tourism and Ouzo going for her. I know that is a gross simplification, but everything else Greece tries to export requires materials that they need to import. They just moved the problem by leaving the Euro and not solved the problem of overspending. All those fixed pensions and wages that will be eroded by inflation if they were to leave the Euro will create immense social / political disruptions.

I think the Greeks better get used to being the serfs of German bankers...

[Migraine]

The US has an unlimited supply of paper and ink. Why don’t we just buy Greece?

We already have enough greece on our southern border.

[Migraine]

It is hard to say this, or visualize it, of Europe, but a large segment of the population in Greece are little more than peasants. A lot of the Balkan Pen. is that way, same with Portugal, and, to an extent, Spain. Most people cannot even imagine that.

[DrC]

“Why don’t we just buy Greece?”

Please don’t give the Obama team any ideas. We’ve squandered enough on bailouts, cash for clunkers and other hare-brained schemes to get the economy moving again. The slow pace of recovery is literally unprecedented in post-WWII recessions. We’ve now passed the point where the cure is way worse than the disease. The notion that these bozos could do any better than the clowns in charge in Greece at kickstarting the Greek economy is ludicrous.

[SouthTexas]

Just trying to get something back for a change.

We could buy Greece and sell it to China for what we owe them.

[2aberro]

The US has an unlimited supply of paper and ink. Why don’t we just buy Greece?

Uh,,, don't give the rats any ideas, can you imagine which party Greece would expand? They are already doing this with Puerto Rico.

[DrC]

“We could buy Greece and sell it to China for what we owe them.”

Wouldn’t that be like buying up a bank’s toxic assets and trying to sell them to some unwitting dupe? Sure, I’d love to take $1T in debt off of Uncle Sam’s books, but I don’t think the Chinese are quite that stupid.