Displaying items by tag: Banks

The Financial Times has published an Op-Ed piece I penned on bonuses in the banking industry. Enjoy!

A bank employee recently asked me: "As a trader, my bonus is derived directly from my profit and loss, which is accrued over the quarter and kept in a separate account. It does not go into the firm's bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account in case I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50m for the year my bonus is $5m. What does my bonus have to do with the mortgage-backed securities [MBS] trader who is sitting on losses? Did I or did I not show a profit of $40m to the firm's bottom line?"

 Main Street is absolutely flabbergasted that bankers do not understand the core issues of this bonus question. Allow me to clearly outline the problem and propose a solution. Assuming this trader works for a prominent US bank that received a bailout, he is not entitled to a $5m bonus if he made $50m for the year. Why not? Because he generated that 10% return from taxpayer capital, not firm capital. For example, Goldman Sachs would have had the drawdown from purgatory had it not been rescued from a $30bn credit default swap deal with AIG.

Let's assume AIG would have negotiated a 40% payout to Goldman Sachs, which is realistic given that litigation with an insolvent company that had many more contingent and direct claims would probably have resulted in a lower net receipt to Goldman. This alone would have resulted in a hole of about $7.8bn for the bank.

The Financial Times has published an Op-Ed piece I penned on bonuses in the banking industry. Enjoy!

A bank employee recently asked me: "As a trader, my bonus is derived directly from my profit and loss, which is accrued over the quarter and kept in a separate account. It does not go into the firm's bottom line and then back out to me. Also, like most traders, I accrue 2% of my gains in a loss provision account in case I have a major write-down in the year. My bonus is 10% of my profit for the year. If I make $50m for the year my bonus is $5m. What does my bonus have to do with the mortgage-backed securities [MBS] trader who is sitting on losses? Did I or did I not show a profit of $40m to the firm's bottom line?"

 Main Street is absolutely flabbergasted that bankers do not understand the core issues of this bonus question. Allow me to clearly outline the problem and propose a solution. Assuming this trader works for a prominent US bank that received a bailout, he is not entitled to a $5m bonus if he made $50m for the year. Why not? Because he generated that 10% return from taxpayer capital, not firm capital. For example, Goldman Sachs would have had the drawdown from purgatory had it not been rescued from a $30bn credit default swap deal with AIG.

Let's assume AIG would have negotiated a 40% payout to Goldman Sachs, which is realistic given that litigation with an insolvent company that had many more contingent and direct claims would probably have resulted in a lower net receipt to Goldman. This alone would have resulted in a hole of about $7.8bn for the bank.

So, Fitch finally get's around to downgrading the Greek banks. The sovereign debt short is probably a bit crowded right now, and may be due for a squeeze, but the fundamentals and the macro situation still stands. As a matter of fact, I really believe that most investors, speculators, pundits and regulators are actually looking at the wrong sets of risks - hence may truly be surprised when the choco-pudding hits the fan blades. 

From Fitch:

Fitch Ratings-Barcelona/London-23 February 2010: Fitch Ratings has today downgraded the Long-term and Short-term Issuer Default Ratings (IDR) of Greece's four largest banks,  National Bank of Greece (NBG), Alpha Bank  (Alpha), Efg Eurobank Ergasias (Eurobank) and Piraeus Bank (Piraeus) to 'BBB' from 'BBB+' and 'F3' from 'F2' respectively. The Outlook on the Long-term IDRs is Negative.

• Alpha Bank warned about in subscriber reports last week - Check!
• National Bank of Greece warned about in subscriber report last week - Check!
• Efg Eurobank Ergasias (Eurobank) warned about in subscriber report last week -Check!
• Piraeus Bank (Piraeus)  warned about in subscriber report last week -Check!

All subscribers can download the Greek Bank Tear Sheet here: 

 Greek Banking Fundamental Tear Sheet

Pro subscribers can click below for the extended download

 Banks exposed to high sovereign risks 

There is only one bank in the analysis that was not downgraded, most likely for political issues. It is really only a matter of time, and when that one goes, so goes Greece... 

At the same time, the agency has downgraded the banks' Individual Ratings to 'C' from 'B/C', whilst the ratings of the banks' senior, subordinated and hybrid capital instruments have all been downgraded by one notch. The Support Ratings and Support Rating Floors (SRF) of all four banks have been affirmed.

A full rating breakdown is provided at the end of this comment.  Separately, Fitch has also affirmed Agricultural Bank of Greece's (ATEbank) Long-term IDR at 'BBB-', which is on its SRF, and Short-term IDR at 'F3'. The Outlook on the Long-term IDR is Negative. ATEbank's IDRs, Support Rating and SRF are based on sovereign support as the bank is majority-owned by the Greek state (rated 'BBB+'/Negative Outlook).

The rating actions reflect Fitch's view that the banks' already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece. In particular, Fitch believes the required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality. The latter could result in higher credit costs, ultimately weakening underlying profitability.

While the banks' operations in South Eastern Europe (SEE) and Turkey add revenue diversification, such revenues are derived from more volatile economies - some of which have themselves experienced recessionary pressures.

The banks' profitability is also likely to be affected by higher funding costs derived from increased funding and liquidity pressures on Greek banks which mostly resulted from the ongoing market perception of elevated risk surrounding the Greek sovereign. The uncertainties surrounding the Greek public finances have to a large extent constrained Greek banks' access to wholesale markets and, to a lesser degree, interbank markets at reasonable prices. As a result, Greek banks continue to rely to some degree on European Central bank (ECB) funding. While unhindered access to ECB facilities provides short-term liquidity, Fitch would welcome a rebalancing of the banks' funding and liquidity profiles towards more traditional funding sources. However, on a positive note, Fitch highlights that Greek banks continue to be primarily funded by customer deposits (86% of gross loans on average for the five largest Greek banks at end-Q309), highlighting limited reliance on non-bank wholesale funding. Additionally, wholesale funding maturities for 2010 are manageable and funding needs for the year should be limited.

Excluding ATEbank, the other four banks' Long-term IDRs remain based on their individual financial strength, as expressed by Fitch's Individual Rating. This takes into account their well-established domestic banking franchises, which support revenue generation and good deposit bases, sound and in most cases recently strengthened capitalisation and also some degree of geographical diversification.

The Negative Outlook on all the banks' IDRs could be revised to Stable should Greek banks be successful in reducing ECB funding and be able to rebalance their funding and liquidity position without impairing their profitability, and if their underlying earnings capacity proves to be more resilient than currently anticipated to the expected prolonged recessionary environment in Greece and to a lesser extent in SEE.

 The real question of the day is when will the rating agencies get serious and start downgrading Bank Greece. Bank Greece is an interesting entity, for it is the publicly traded Central Bank of Greece. Hey, why don't we float an offering of Bernanke Bank, the Federal Reserve - ticker BBFRB:-). Bank Greece's liabilities are backed directly by the Greek Government. I think it is fair to say that the Greek government's explicit backing doesn't necessarily mean that an entity is truly economically indemnified against loss. Who's backing the Greek government? As of the time of this writing, not one!

As we go over the responsibilities of Bank Greece, just keep in mind its financial condition in relation to the other banks, despite being backed by an entity that currently cannot pay its bills, has more debt than annual GDP and is facing civil unrest in trying to adjust its budget in attempt to resolve the issue, Bank Greece has the highest valuation multiple of 1.2x book, and has the highest adjusted leverage - by far - of the group at nearly 90x. Normally, the explicit backing of the Greek government should mean something, but again since it is obvious that the Greek government needs backing, this is sort of an increasingly empty promise - in appearance at least. 

The next question is since the Bank of Greece is a member of the European System of Central Banks (ESCB) which is composed of the European Central Bank (ECB) and the national central banks (NCBs) of all 27 European Union (EU) Member States, do they get backstopped somehow by forces from the EU? Inquiring minds want to know. I mean, it is quite feasible that the Greek banks can get in trouble once austerity measures take place and the civil unrest picks up. Even if unrest doesn't pick up, there is still a nearly guaranteed deepening of the recession. Then there is CEE exposure, which can help push banks over the edge. If the Greek Central Bank has to come to the aid of the banks, who will come to the Greek Central Banks aid? It is obvious that Greece doesn't have the budget for it. 

The Bank of Greece, a short summary taken from their website... 

The Bank of Greece is the central bank of the country. It was established in 1927 by an Annex to the Geneva Protocol and started operations in May 1928. It was incorporated as a société anonyme. According to its Statute, its head office is in Athens. It has a nationwide network of 19 branches, 38 agencies and 7 outlets.

As from January 2001, the Bank of Greece is an integral part of the Eurosystem, which consists of theEuropean Central Bank  (ECB) and the national central banks (NCBs) of the European Union (EU) Member States participating in the euro area. This implies that the Bank of Greece contributes through its activities to the achievement of the objectives and the performance of the tasks of the Eurosystem, which defines and implements monetary policy in the euro area.

The Bank of Greece is responsible for implementing the Eurosystem’s monetary policy in Greece and safeguarding the stability of the Greek financial system. According to its Statute, its primary objective is to ensure the stability of the general price level. Without prejudice to its primary objective, the Bank supports the general economic policy of the government. In the performance of its tasks, the Bank enjoys institutional, personal and operational independence, and is accountable to the Greek Parliament.

Eurosystem-Related Tasks

Monetary policy

The Bank of Greece participates in the formulation of the single monetary policy in the euro area and implements it in Greece, in line with the guidelines and instructions of the European Central Bank (ECB). The Bank conducts monetary policy operations whereby it provides liquidity to domestic credit institutions (main and long-term refinancing operations). It also provides marginal lending and deposit facilities to credit institutions, in order to grant and absorb liquidity, respectively. Finally, it holds the minimum reserve accounts of domestic banks.

Financial stability

The Bank of Greece is responsible for monitoring financial stability, with a view to identifying vulnerabilities in Greece’s financial system, and assesses its resilience.

• It promotes arrangements for the maintenance of financial stability and effective management of financial crises, in cooperation with other competent authorities in Greece.
• It monitors banking risks, analyses developments affecting them and presents proposals for ensuring financial stability. It also monitors developments in insurance and investment firms, as well as in undertakings in collective investments not supervised by the Bank of Greece.

I think it is fair to say they are not doing a very good job of excelling at the financial stability task right now.

Statistics

Collecting statistical data from monetary financial institutions (MFIs) (i.e. banks and money market funds) is also a very important task of the Bank. The Bank of Greece collects data on bank rates, as well as data that make up monetary statistics (loans, deposits and other assets and liabilities of MFIs). These statistics are sent to the ECB and taken into account for the calculation of average interest rates in the euro area and the compilation of euro area monetary and credit aggregates. These aggregates are monitored in the context of the Eurosystem’s monetary analysis and their outcomes directly affect monetary policy decisions.

Treasurer and fiscal agent of the government

The Bank of Greece keeps current and time deposit accounts of the government and legal persons in public law in euro and foreign exchange, on the one hand for meeting domestic requirements and, on the other hand, for servicing the external debt. It also carries out payment and collection orders of the government and legal persons in public law in connection with foreign counterparties and provides intermediation services for their international financial activities.

Hmmm!!!

Statistics

The Bank of Greece also compiles and publishes the monetary and credit aggregates concerning the Greek economy and the average interest rates applied by domestic credit institutions to various categories of deposits and loans. In addition to collecting data for monetary statistics, the Bank of Greece also compiles the balance of payments and the financial accounts of the country and, generally, collects and publishes data concerning the Greek economy in the Bulletin of Conjunctural Indicators. Moreover, it conducts specialised statistical surveys on matters related to its tasks (e.g. household indebtedness surveys).

Collecting statistical data aims at both meeting the Bank’s own statistical information requirements and performing its obligations towards the ECB and other international organisations, as well as informing the public and researchers in Greece and abroad. Specifically, the data – in addition to monetary statistics – collected and compiled by the Bank of Greece concern the following four categories:

i. assets and liabilities of financial corporations and data on the mutual fund market

ii. Greece’s balance of payments and international investment position

iii. the country’s financial accounts, according to the methodology of the European System of Accounts 1995 and

iv. general data on the Greek economy.

Can we really trust these numbers?

 See Will Greece Set Off the Pan-European Sovereign Debt Crisis? as well as: 

So, Fitch finally get's around to downgrading the Greek banks. The sovereign debt short is probably a bit crowded right now, and may be due for a squeeze, but the fundamentals and the macro situation still stands. As a matter of fact, I really believe that most investors, speculators, pundits and regulators are actually looking at the wrong sets of risks - hence may truly be surprised when the choco-pudding hits the fan blades. 

From Fitch:

Fitch Ratings-Barcelona/London-23 February 2010: Fitch Ratings has today downgraded the Long-term and Short-term Issuer Default Ratings (IDR) of Greece's four largest banks,  National Bank of Greece (NBG), Alpha Bank  (Alpha), Efg Eurobank Ergasias (Eurobank) and Piraeus Bank (Piraeus) to 'BBB' from 'BBB+' and 'F3' from 'F2' respectively. The Outlook on the Long-term IDRs is Negative.

• Alpha Bank warned about in subscriber reports last week - Check!
• National Bank of Greece warned about in subscriber report last week - Check!
• Efg Eurobank Ergasias (Eurobank) warned about in subscriber report last week -Check!
• Piraeus Bank (Piraeus)  warned about in subscriber report last week -Check!

All subscribers can download the Greek Bank Tear Sheet here: 

 Greek Banking Fundamental Tear Sheet

Pro subscribers can click below for the extended download

 Banks exposed to high sovereign risks 

There is only one bank in the analysis that was not downgraded, most likely for political issues. It is really only a matter of time, and when that one goes, so goes Greece... 

At the same time, the agency has downgraded the banks' Individual Ratings to 'C' from 'B/C', whilst the ratings of the banks' senior, subordinated and hybrid capital instruments have all been downgraded by one notch. The Support Ratings and Support Rating Floors (SRF) of all four banks have been affirmed.

A full rating breakdown is provided at the end of this comment.  Separately, Fitch has also affirmed Agricultural Bank of Greece's (ATEbank) Long-term IDR at 'BBB-', which is on its SRF, and Short-term IDR at 'F3'. The Outlook on the Long-term IDR is Negative. ATEbank's IDRs, Support Rating and SRF are based on sovereign support as the bank is majority-owned by the Greek state (rated 'BBB+'/Negative Outlook).

The rating actions reflect Fitch's view that the banks' already weakening asset quality and profitability will come under further pressure due to anticipated considerable fiscal adjustments in Greece. In particular, Fitch believes the required fiscal tightening that needs to be made by the Greek government will have a significant effect on the real economy, affecting loan demand and putting additional pressure on asset quality. The latter could result in higher credit costs, ultimately weakening underlying profitability.

While the banks' operations in South Eastern Europe (SEE) and Turkey add revenue diversification, such revenues are derived from more volatile economies - some of which have themselves experienced recessionary pressures.

The banks' profitability is also likely to be affected by higher funding costs derived from increased funding and liquidity pressures on Greek banks which mostly resulted from the ongoing market perception of elevated risk surrounding the Greek sovereign. The uncertainties surrounding the Greek public finances have to a large extent constrained Greek banks' access to wholesale markets and, to a lesser degree, interbank markets at reasonable prices. As a result, Greek banks continue to rely to some degree on European Central bank (ECB) funding. While unhindered access to ECB facilities provides short-term liquidity, Fitch would welcome a rebalancing of the banks' funding and liquidity profiles towards more traditional funding sources. However, on a positive note, Fitch highlights that Greek banks continue to be primarily funded by customer deposits (86% of gross loans on average for the five largest Greek banks at end-Q309), highlighting limited reliance on non-bank wholesale funding. Additionally, wholesale funding maturities for 2010 are manageable and funding needs for the year should be limited.

Excluding ATEbank, the other four banks' Long-term IDRs remain based on their individual financial strength, as expressed by Fitch's Individual Rating. This takes into account their well-established domestic banking franchises, which support revenue generation and good deposit bases, sound and in most cases recently strengthened capitalisation and also some degree of geographical diversification.

The Negative Outlook on all the banks' IDRs could be revised to Stable should Greek banks be successful in reducing ECB funding and be able to rebalance their funding and liquidity position without impairing their profitability, and if their underlying earnings capacity proves to be more resilient than currently anticipated to the expected prolonged recessionary environment in Greece and to a lesser extent in SEE.

 The real question of the day is when will the rating agencies get serious and start downgrading Bank Greece. Bank Greece is an interesting entity, for it is the publicly traded Central Bank of Greece. Hey, why don't we float an offering of Bernanke Bank, the Federal Reserve - ticker BBFRB:-). Bank Greece's liabilities are backed directly by the Greek Government. I think it is fair to say that the Greek government's explicit backing doesn't necessarily mean that an entity is truly economically indemnified against loss. Who's backing the Greek government? As of the time of this writing, not one!

As we go over the responsibilities of Bank Greece, just keep in mind its financial condition in relation to the other banks, despite being backed by an entity that currently cannot pay its bills, has more debt than annual GDP and is facing civil unrest in trying to adjust its budget in attempt to resolve the issue, Bank Greece has the highest valuation multiple of 1.2x book, and has the highest adjusted leverage - by far - of the group at nearly 90x. Normally, the explicit backing of the Greek government should mean something, but again since it is obvious that the Greek government needs backing, this is sort of an increasingly empty promise - in appearance at least. 

The next question is since the Bank of Greece is a member of the European System of Central Banks (ESCB) which is composed of the European Central Bank (ECB) and the national central banks (NCBs) of all 27 European Union (EU) Member States, do they get backstopped somehow by forces from the EU? Inquiring minds want to know. I mean, it is quite feasible that the Greek banks can get in trouble once austerity measures take place and the civil unrest picks up. Even if unrest doesn't pick up, there is still a nearly guaranteed deepening of the recession. Then there is CEE exposure, which can help push banks over the edge. If the Greek Central Bank has to come to the aid of the banks, who will come to the Greek Central Banks aid? It is obvious that Greece doesn't have the budget for it. 

The Bank of Greece, a short summary taken from their website... 

The Bank of Greece is the central bank of the country. It was established in 1927 by an Annex to the Geneva Protocol and started operations in May 1928. It was incorporated as a société anonyme. According to its Statute, its head office is in Athens. It has a nationwide network of 19 branches, 38 agencies and 7 outlets.

As from January 2001, the Bank of Greece is an integral part of the Eurosystem, which consists of theEuropean Central Bank  (ECB) and the national central banks (NCBs) of the European Union (EU) Member States participating in the euro area. This implies that the Bank of Greece contributes through its activities to the achievement of the objectives and the performance of the tasks of the Eurosystem, which defines and implements monetary policy in the euro area.

The Bank of Greece is responsible for implementing the Eurosystem’s monetary policy in Greece and safeguarding the stability of the Greek financial system. According to its Statute, its primary objective is to ensure the stability of the general price level. Without prejudice to its primary objective, the Bank supports the general economic policy of the government. In the performance of its tasks, the Bank enjoys institutional, personal and operational independence, and is accountable to the Greek Parliament.

Eurosystem-Related Tasks

Monetary policy

The Bank of Greece participates in the formulation of the single monetary policy in the euro area and implements it in Greece, in line with the guidelines and instructions of the European Central Bank (ECB). The Bank conducts monetary policy operations whereby it provides liquidity to domestic credit institutions (main and long-term refinancing operations). It also provides marginal lending and deposit facilities to credit institutions, in order to grant and absorb liquidity, respectively. Finally, it holds the minimum reserve accounts of domestic banks.

Financial stability

The Bank of Greece is responsible for monitoring financial stability, with a view to identifying vulnerabilities in Greece’s financial system, and assesses its resilience.

• It promotes arrangements for the maintenance of financial stability and effective management of financial crises, in cooperation with other competent authorities in Greece.
• It monitors banking risks, analyses developments affecting them and presents proposals for ensuring financial stability. It also monitors developments in insurance and investment firms, as well as in undertakings in collective investments not supervised by the Bank of Greece.

I think it is fair to say they are not doing a very good job of excelling at the financial stability task right now.

Statistics

Collecting statistical data from monetary financial institutions (MFIs) (i.e. banks and money market funds) is also a very important task of the Bank. The Bank of Greece collects data on bank rates, as well as data that make up monetary statistics (loans, deposits and other assets and liabilities of MFIs). These statistics are sent to the ECB and taken into account for the calculation of average interest rates in the euro area and the compilation of euro area monetary and credit aggregates. These aggregates are monitored in the context of the Eurosystem’s monetary analysis and their outcomes directly affect monetary policy decisions.

Treasurer and fiscal agent of the government

The Bank of Greece keeps current and time deposit accounts of the government and legal persons in public law in euro and foreign exchange, on the one hand for meeting domestic requirements and, on the other hand, for servicing the external debt. It also carries out payment and collection orders of the government and legal persons in public law in connection with foreign counterparties and provides intermediation services for their international financial activities.

Hmmm!!!

Statistics

The Bank of Greece also compiles and publishes the monetary and credit aggregates concerning the Greek economy and the average interest rates applied by domestic credit institutions to various categories of deposits and loans. In addition to collecting data for monetary statistics, the Bank of Greece also compiles the balance of payments and the financial accounts of the country and, generally, collects and publishes data concerning the Greek economy in the Bulletin of Conjunctural Indicators. Moreover, it conducts specialised statistical surveys on matters related to its tasks (e.g. household indebtedness surveys).

Collecting statistical data aims at both meeting the Bank’s own statistical information requirements and performing its obligations towards the ECB and other international organisations, as well as informing the public and researchers in Greece and abroad. Specifically, the data – in addition to monetary statistics – collected and compiled by the Bank of Greece concern the following four categories:

i. assets and liabilities of financial corporations and data on the mutual fund market

ii. Greece’s balance of payments and international investment position

iii. the country’s financial accounts, according to the methodology of the European System of Accounts 1995 and

iv. general data on the Greek economy.

Can we really trust these numbers?

 See Will Greece Set Off the Pan-European Sovereign Debt Crisis? as well as: 

Now that the Fed has sent a clear signal that they are withdrawing some of the hyper-stimulus measures, combined with the fact that the monopolistic trading profits of the big banks are returning to mean, the trash on bank balance sheets should start coming to fore. Higher rates will compress net interest margins, and if you have been following my research the NIM of many banks were actually rather anemic despite zero interest rate policy. Now that banks are going to have to actually earn money by lending in lieu of a free lunch from the government, you should start seeing some very big hits to earnings - accounting and otherwise.

Now that the Fed has sent a clear signal that they are withdrawing some of the hyper-stimulus measures, combined with the fact that the monopolistic trading profits of the big banks are returning to mean, the trash on bank balance sheets should start coming to fore. Higher rates will compress net interest margins, and if you have been following my research the NIM of many banks were actually rather anemic despite zero interest rate policy. Now that banks are going to have to actually earn money by lending in lieu of a free lunch from the government, you should start seeing some very big hits to earnings - accounting and otherwise.

This is a trick question, for the fates of many European countries are now inextricably tied by what appears to be a poorly conceived methodology of handling diverse political and economic entities under a single currency without a truly authoritarian governing body. Basically, it's the old American saying, "Too many Chiefs and not enough Indians". If one member faces a harder landing, chances are that several others will follow. When I first started this series, a few pundits accused me of being sensationalist. I assume their weren't studying the numbers. It's funny how a few days can bring so many to your side of the table. Now it is becoming much clearer that this is more of a pan-European issue than a pan-Hellenic one.
The printer of the world's reserve currency had a problem selling debt. How well do you think the EMU members will be able to hawk their record trillions of (now apparently obvious to all) relatively stressed debt? Well, Europe's Economic Recovery Almost Stalls as Germany Unexpectedly Stagnates as the IMF Joins EU, ECB in Pledging Support for Greece. This is an extreme blow to the credibility of the Euro. Just a year ago, (silly) pundits were speculating that the Euro would replace the dollar as the world's reserve currency, and now the IMF is coming to a EMU members aid just has it has third world and emerging countries.

This is part 3 of my Pan-European Sovereign Debt Crisis Series. See The Coming Pan-European Soverign Debt Crisis and What Country is Next in the Coming Pan-European Sovereign Debt Crisis? for the first two parts.

This is a trick question, for the fates of many European countries are now inextricably tied by what appears to be a poorly conceived methodology of handling diverse political and economic entities under a single currency without a truly authoritarian governing body. Basically, it's the old American saying, "Too many Chiefs and not enough Indians". If one member faces a harder landing, chances are that several others will follow. When I first started this series, a few pundits accused me of being sensationalist. I assume their weren't studying the numbers. It's funny how a few days can bring so many to your side of the table. Now it is becoming much clearer that this is more of a pan-European issue than a pan-Hellenic one.
The printer of the world's reserve currency had a problem selling debt. How well do you think the EMU members will be able to hawk their record trillions of (now apparently obvious to all) relatively stressed debt? Well, Europe's Economic Recovery Almost Stalls as Germany Unexpectedly Stagnates as the IMF Joins EU, ECB in Pledging Support for Greece. This is an extreme blow to the credibility of the Euro. Just a year ago, (silly) pundits were speculating that the Euro would replace the dollar as the world's reserve currency, and now the IMF is coming to a EMU members aid just has it has third world and emerging countries.

This is part 3 of my Pan-European Sovereign Debt Crisis Series. See The Coming Pan-European Soverign Debt Crisis and What Country is Next in the Coming Pan-European Sovereign Debt Crisis? for the first two parts.