Thursday, April 22, 2010

"Germany warns of 'Lehman' crisis if Greece defaults" and "Moore Capital warns of euro zone 'breakdown'"

A twofer. First up, the Telegraph's Ambrose Evans-Pritchard:

German finance minister Wolfgang Schauble has pleaded with his country's citizens to back a joint EU-IMF bail out for Greece worth up to €45bn (£40bn), warning that failure to act risks a financial meltdown.

"We cannot allow the bankruptcy of a euro member state like Greece to turn into a second Lehman Brothers," he told Der Spiegel.

"Greece's debts are all in euros, but it isn't clear who holds how much of those debts. The consequences of a national bankruptcy would be incalculable. Greece is just as systemically important as a major bank," he said.

Mr Schauble said Berlin had scant room for manoeuvre over the bail-out given a likely court challenge by German professors but promised to "abide by the constitution".

German backing failed to stop spreads on 10-year Greek bonds surging to 454 basis points over German Bunds, the highest since the launch of the euro.

"Investors are not going to believe in a rescue deal until every 'i' it dotted and every 't' is crossed, " said Marc Ostwald from Monument Securities. "But there is also a deeper fear that Greece could bring down the whole pack of cards.">>>MORE

And from MarketWatch:

Hedge fund firm criticizes Greek bailout; looks for 'sticky' investors
Moore Capital, a leading global macro hedge fund firm run by Louis Moore Bacon, warned of a "potential breakdown" of the European Monetary Union and criticized plans to bail out Greece, according to a recent investor letter obtained by MarketWatch on Wednesday.

"Perhaps the most interesting area for the foreseeable future is in the potential breakdown of the European Monetary Union," Bacon wrote in the letter, dated April 16.

"Instead of punishing the Greeks for their free-rider and fraudulent gaming of the Maastricht rules -- either by ejecting Greece from the Union to propel them to reform and come back at a competitive exchange rate or by forcing them to restructure their debt within the confines of monetary union, either of which would have eventually strengthened and solidified the euro -- the European leaders have decided to reward the prodigal Greeks with a bailout, socializing their ills and taxing once again the prodigious northern European workers," Bacon added.

The bailout could have "disastrous consequences" for the European Union and Europe, he warned.

Sovereign wealth funds have bought trillions of euros to diversify away from U.S. dollars. That's supported the euro and allowed European investors to "flee their debauched currency," Bacon wrote.

When sovereign wealth funds "finally realize what they own, they may stand aside," he warned. "The euro will find a new level while these large funds instead seek currencies in the emerging markets where solvency is not such an issue.">>>MORE