Greece: "The vortex is swirling around the drain"

The vortex is swirling around the drain. Germany is not putting up more cash and Greece is stuck inside a brick wall. Ireland is sinking faster than most realize and should be back in the headlines soon while Portugal's bonds have been downgraded to junk status.  But don't worry, there's another contender for being the straw that broke the world economy's back that might even beat out Europe... Japan.

Greece Dispatches Officials to US Over Default Fears; Senior S&P Official Expects Default Soon; Greek One-Year Bond Yield Touches 415%; Ducks Lined Up for Merkel Orchestrated Default

Mish's Global Ecvonomic Analyis,

16 January, 2012

A Greek default appears likely soon as Greece Dispatches Officials to US Over Default Fears.

Greece sent senior officials to Washington on Monday for meetings with the International Monetary Fund as it raced against the clock to break a deadlock in debt swap talks that has raised fears of an unruly default.

Barely a month after an injection of bailout funds helped avert bankruptcy, Greece is back at the centre of the euro zone crisis as fears of a default and a subsequent euro zone exit overshadow a mass credit downgrade of euro zone countries.

Cash-strapped Athens needs a deal with the private sector within days to avoid going bankrupt when 14.5 billion euros of bond redemptions fall due in late March.

But Athens is quickly running out of time on the bond swap front. A deal must be sealed before senior inspectors from the EU, IMF and ECB "troika" arrive in Athens at the end of the week to agree details of a second, 130-billion-euro bailout.

Furthermore, an agreement in principle is needed by the end of this week if it is to be finalized in time for the March bond redemptions, Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times.

Banking sources say Athens is not the problem in the talks, pointing the finger at terms insisted on by the so-called troika of EU, ECB and IMF lenders keeping Greece afloat with aid.

In a bid to resolve the impasse, a government source said the head of Greece's debt agency and a senior adviser were travelling on Monday to Washington to meet IMF officials - just a day before a team of technical experts from the troika arrives in the Greek capital.

One banking source said official sector creditors had asked for a coupon of less than 4 percent, irking banks for whom it would have meant losses of over 75 percent on the bonds.

A second source involved in the discussions said the troika had pushed for a coupon of 2 to 3 percent that banks deemed unacceptable, below the 4 percent level that Greece and France proposed. Banks considered a 4 to 5 percent coupon sustainable for Greece, the source said.

Without a more palatable offer, the level of participation among private creditors could slip to below the level needed to ensure the deal is considered voluntary, the source said.

Senior S&P Official Expects Default Soon

CNBC reports S&P expects Greece to default soon.

Greece will default shortly on its debt obligations, a senior Standard & Poor's official told Bloomberg Television on Monday.

"Greece will default very shortly. Whether there will be a solution at the end of the current rocky negotiations I cannot say," said Moritz Kraemer, the head of the agency's European sovereign ratings unit.

"There is a lot of brinksmanship on and a disorderly default will have ramifications on other countries but I believe policymakers will want to avoid that ... The game is still on."

Greek One-Year Bond Yield Touches 415%

Ducks Lined Up for Merkel Orchestrated Default

The hangup preventing an agreement is the coupon rate. Germany has proposed a 2% coupon rate. That would drive the losses on Greek bonds from 60% to 80%. 

Is this a signal that Chancellor Merkel has had enough of bailouts and wants to dump Greece? I think so and talks with the IMF suggest so as well.

I do not really buy the idea that a deal has to be reached within days given bond redemptions are not until late March. It 's easier to believe the IMF and EU need that time to arrange for an orderly as possible Greek return to the drachma.

It's possible of course that a deal is worked out, but it seems Germany and the IMF have had enough with Greece and the S&P is preparing everyone for the inevitable.

The ducks are lined up for default.  All it takes is for creditors to refuse a coupon rate of 2% and the accompanying 80% losses (soon to be 100% losses) for anyone without Credit Default Swap (CDS) protection.