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Greek default?

Betting On the PIGs. The BIS today released some very interesting new data (pdf) on the exposure of various parties to debt issued by the PIGs (Portugal, Ireland, and Greece). There is a lot of good stuff in this data -- particularly what it tells us about who is betting which way on a default by one of the PIGs. Let me first make three observations. Observation #1. Default Insurance Matters.First, the BIS data very helpfully breaks exposures into two pieces: direct exposures, which basically means creditors who own bonds issued by one of the PIGs; and indirect exposures, which for the most part means agents who sold default insurance to creditors, primarily through credit default swaps.

Observation #2. The next table illustrates this difference even more starkly. Observation #3. ImplicationsThis has some important implications. Second, there's an interesting puzzle here. UPDATE (June 13): In response to questions from a number of readers, here are some details about BIS definitions. Domino #2: S&P Downgrades Largest French Retail Banking Group, Credit Agricole, To A+ From AA-, Due To "Greek Exposure" | zero hedge. Yes, banks are indeed on the hook should Greece file. Keep an eye on those Deutsche Bank puts.

From S&P: Overview On May 9, 2011, we lowered our sovereign ratings on Greece to 'B/C' from 'BB-/B' and maintained them on CreditWatch negative, reflecting rising rescheduling risk for Greece's sovereign debt.We consider that French banking group Crédit Agricole (GCA) has a significant sensitivity to Greece's creditworthiness and economic prospects, primarily through subsidiary Emporiki's funding needs and exposure to local credit risk.We are lowering our ratings on Crédit Agricole S.A. and its related core subsidiaries to 'A+/A-1' from 'AA-/A-1+'.The stable outlook reflects our view that GCA's businesses are performing well, and that the group has a strong retained earnings capacity which would allow it to absorb possible losses from Greek exposures and build up capital at a pace, and up to a level, which we see as consistent with the 'A+' rating. Rating Action. Italy. Spain. Italian default scenarios.

Cross-posted from Credit Writedowns The most important debate of our lifetimes is now ongoing. For many, the answer will be existential. First, the question: Should the ECB “write the check’ for the euro area national governments? In thinking about the answer to this all-important question, I prefer to shift the focus by changing the verb “should” to “will”. Answering this slightly different question is much more important than answering the first question for you as an investor, a business person and as a worker. If the ECB writes the check, the economic and market outcomes are vastly different than if they do not. To date, my answer to this question has been yes. Here’s my thinking on that score. Italian death spiral Let me start off with what I have previously written from two posts from November 7th. The euro zone periphery was a sideshow. Here’s what I am saying.

Conclusion: Italy will face a liquidity-induced insolvency without central bank intervention. Soft depression. Interview With US Economist Eichengreen: 'Europe's Banks Are in Far Greater Danger Than People Realize' - SPIEGEL ONLINE - News - International. Untitled. Handelsblatt Reports Second Greek Bailout Package To Be Delayed | zero hedge. #000000; font-family: 'Times New Roman'; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: normal; orphans: 2; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px; font-size: medium;"> It seems that Europe once again shot its last bullet a few days too early (to use a more polite phrasing than the alternative) with the announcement from last week that the Greek bailout was a done deal.

As we speculated, various complications will soon emerge for anyone who cares to read the fine print in the bond indentures which preclude the imposition of Collective Action Clauses, thereby making an enforcement of a "voluntary" maturity extension problematic if anything. Below we present an article that appeared in Handelsblatt in the last hour, which indicates that opposition to the rescue has emerged not only from Slovakia, but from the UK as well. Resistance is also available from the UK. A Loan and a Prayer by Nouriel Roubini and Stephen Mihm.

Exit from comment view mode. Click to hide this space NEW YORK – The countries known collectively as the PIIGS – Portugal, Ireland, Italy, Greece, and Spain – are burdened with increasingly unsustainable levels of public and private debt. Several of the worst-hit – Portugal, Ireland, and Greece – have seen their borrowing costs soar to record highs in recent weeks, even after their loss of market access led to bailouts financed by the European Union and the International Monetary Fund.

Spanish borrowing costs are also rising. Greece is clearly insolvent. The official approach, Plan A, has been to pretend that these economies suffer a liquidity crunch, not a solvency problem, and that the provision of bailout loans – together with fiscal austerity and structural reforms – can restore debt sustainability and market access.

Nor can we expect rapid GDP growth to save these countries. This can happen in a number of ways.

Greece

Ireland.