Trader Talk

Juncker Opens Door to Greek Renegotiating

"Technical revisions"? Jean-Claude Juncker has opened the door to renegotiating Greece's debt. European stock markets are down again today on good news: The European leadership is now openly acknowledging that they will be renegotiating the outdated agreement to restructure Greece's debt.

Juncker, the euro zone's head finance minister, said: "...we have to take into account that we have experienced changes since the decision we have taken on July 21. These are technical revisions we are discussing."

It's a lot more than technical revisions. The agreement is outdated. A far more aggressive restructuring is needed, and now they have acknowledged that will happen.

Greece's debt holders have been negotiating to take a haircut of 21 percent on their holdings as part of an agreement between Greece and the troika (the International Monetary Fund/European Union/European Central Bank) to advance emergency funds to Greece. That agreement was reached July 21, but since then Greece has consistently failed to meet its austerity targets.

On top of that, Greek debt is trading at a 50 percent haircut, not a 21 percent haircut.

The debate is not restructure or not, it is: restructure and stay in the euro zone, or restructure and leave the euro zone.

So why are stocks down? European officials are putting off sending the next tranche of aid until later in October so they can renegotiate a deal with Greece and the bondholders. Investors are worried that this increases the chances of a "disorderly default," rather than a negotiated haircut.

It does increase risk, but there is no other realistic way out. It's worth it, if it gets closer to where the true marks are.

European banks are down 1 percent to 3 percent—why aren't they down even more? Partly because they've been selling ahead of this news for weeks, but also it's partly because bank credit default swapsare wider this morning in Europe as one weak link—Dexia—has essentially been bailed out.

Think bailout is too strong a word? Look at this statement from the Belgian and French finance ministers: "The French and Belgian states, in coordination with the central banks, will take all the necessary measures to safeguard the bank's depositors and creditors."


1. EU regulators are reportedly set to issue a statement of objections to the merger of Deutsche Boerse and NYSE Euronext. Careful here: A statement of objections is merely a list of concerns about the merger; it does not necessarily mean EU regulators will be voting against the merger. Both the DB and NYSE will be able to respond to the objections.

2. Bear raid? That's what looked like happened yesterday to AMR. Rodman and Renshaw upgraded the stock, noting that "we believe any Ch. 11 filing would be well-telegraphed ahead of time; no telegraphing exists today."?

3. How cynical has the Street become? Goldman Sachs cut 2012 U.S. gross domestic product estimates this morning, and cut 2012 S&P 500 earnings estimates to $98. They think the U.S. will avoid a recession. One trader said, "This is Goldman getting long."

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