Unprincipled speculators are making billions every day by betting on a Greek default

Foreign Exchange - Currency Outlook

Euro Exchange rate Special: Without naming names, today the WSJ reports "Greek officials" saying the high premium Greece is paying to issue bonds is "unsustainable" and must come down in the next two months. "Greece may formally seek European Union financial aid if its borrowing costs don't fall sharply in coming weeks and, if that doesn't work, will seek a rescue from the International Monetary Fund, government officials said." The preferred form of aid is for European state-owned banks to buy Greek debt. "The officials said Greece needs the spread to tighten to around two percentage points before crunch time: Athens must redeem some €22 billion ($29.92 billion) of bonds in April and May." Greek yields are about 3% higher than German Bunds.

“The first official said Greece will seek to raise a further 10 billion Euros through one or two bond issues this month, and between $5 billion and $10 billion through an offering in March or April targeting investors in the U.S. and Asia.”

Today’s bombshell follows a busy visit to the US by Greek PM Papandreou. He was all over Washington, meeting Congressmen, the President, the TreasSec and the IMF. Papandreou said "Unprincipled speculators are making billions every day by betting on a Greek default," and Obama was receptive to the idea of regulating speculation and that means it will be on the next G20 agenda.

With really interesting timing, CFTC Chairman Gensler said, according to the WSJ, that the US could adopt new regulations for credit-default swaps. The EU said yesterday it may try to ban speculative trading in credit-default swaps on sovereign debt in Europe. The WSJ says the US wouldn’t go that far. Gensler outlined several approaches, including a central clearinghouse, swap activity directly linked to bank capital requirements, and reform of bankruptcy law. In other words, we will get restrictions on speculation when pigs fly. Gensler seems to be one of the heroes in all this but it remains for Congress to do something. Gridlock in Congress, not mention infuriating stupidity, is enough to drive support for executive orders.

In Europe, German Chancellor Merkel agreed that rules should be rushed to halt “the most speculative elements of derivatives trading, including so-called naked transaction, which do not hedge the value of real assets,” according to the FT. On another matter, the formation of a European Monetary Fund, the head of the Bundesbank and probably the next head of the ECB, Weber, said the debate over a monetary fund as “unhelpful” and “a sideshow that will distract from the necessary (fiscal) consolidation.”

As for the IMF, everyone agrees Papandreou didn’t ask for aid or loans or guarantees, just “technical assistance.” We have no idea what that means. Fast computers? Spreadsheets? A gaggle of green-eyeshade guys? If the assistance consists of human beings, how will they greet the Eurostat guys in Athens?

It’s hard not to think all of this is meaningless drama, but it’s hard also not to recognize that Papandreou is a very smart cookie and handling this all quite skillfully. Today’s news, that “Greek officials” are now demanding guarantees so that the cost goes down, may destroy whatever sympathy Papandreou has engendered. It seems likely Greece can continue to issue the rest of the debt at high prices. The last two issues were wildly oversubscribed. Now it doesn’t like the terms, a 3% premium over German issues. Well, too bad.

Pounds to US Dollars = 1.4918
Pounds to Euros = 1.10955
Euro to Pounds = 0.9125
Pounds to Australian Dollars = 1.6303

Bye For Now
Barbara Rockefeller
Foreign Exchange Trading
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