Trader Talk

An Escrow Deal for Greece, or Just a Private Sector Deal?

Greek Parliament
PNC | Brand X Pictures | Getty Images

Now it gets really interesting. Will the euro zone finance ministers approve the 130 billion euro ($169 billion) Greek bailout at their meeting on Monday?

The odds of that happening seem to be greatly diminished. The Europeans seem not to be biting.

Yes, they could agree to the deal with escrow provisions. That would be the most desirable outcome, but it will be very tough to get past the Greeks.

The letter from New Democracy leader Antonis Samaras indicates he will seek to renegotiate the terms of the agreement after the Greek elections. The Europeans will not give the money under such conditions.

Is it all dead? No. Some believe the deal can be split into components, specifically disburse only what is needed to complete the private sector involvement (PSI) deal.

Why the PSI? Because it solves an immediate problem: There could be a provision to postpone the March 20 redemption of the 14.5 billion ($18.9 billion) euro Greek bond.

That’s the critical short-term time bomb. Move that goalpost, and there’s more breathing room. If you can get the parties to agree.

There are other benefits coming with the PSI: Money allocated for recapitalization of Greek banks, some cash sweetener to investors (maybe), but it all pales next to moving that March 20 goalpost.

What about the rest of the deal? The Europeans seem to be moving toward waiting until after the Greek elections.

This is a risky strategy. I keep hearing about increased confidence that there are “firewalls” around Europe, but I don’t have that confidence, and I’m not sure European leaders do either. The bond markets certainly reacted negatively yesterday.

The PSI: It won’t solve Greece’s problems, but it will make a future course of action — whether it’s default or not — more manageable.


1) Stock futures rallied at 8:30 a.m. ET as initial jobless claims were lower than expected, and January housing starts jumped to a 1.5 year high.

2) Time for a pause? Whether its uncertainty about Greece, or just that stocks have gone pretty far this year, the market is looking toppy:

a) Apple, the market leader, staged a rare reversal: After hitting an historic high, it ended the day down 2.3 percent on titantic volume (54 million shares, almost four times normal and the highest in years);

b) transports down 2 percent yesterday, down nearly 4 percent from the recent high, began rolling over last week;

c) materials , the biggest sector leader this year until the end of last week, also began rolling over last week;

d) home building stocks, which have rallied almost 50 percent since the middle of December on hopes for a rebound in home building in 2012, also reversed; and

e) the euro , which has rallied since mid-January at $1.26, got close to $1.33, and broke below $1.30 this morning.

3) Spanish bondyields rise: Raises 4 billion euros ($5.3 billion) at a bond auction that saw higher yields on solid demand. The Treasury sold three-year bonds at an average yield of 3.3 percent, up from 2.9 percent at an auction earlier this month. The debt sale came as data showed Spain’s economy shrank by 0.3 percent in the fourth quarter.

4) Societe Generale shares rise slightly after it follows a trend set by many of its European bank rivals: Missing fourth-quarter earnings’ expectations and providing gloomy 2012 outlook. SocGen reported an 89 percent decline in quarterly earnings after it sold more than 10 billion euros worth of assets to meet more rigid capital requirements. SocGen’s report comes on the heels of Moody’s warning it may downgrade the bank.

5) General Motors shares slump 2 percent pre-open after the global automaker reported lower-than-expected , hurt by disappointing performance overseas where it generates 40 percent of its revenue. The automaker witnessed a loss of $600 million in Europe and $200 million in South America. Despite missing estimates, the bailed-out automaker posted a record profit of $7.6 billion for 2011. GM expects 2012 sales to top the $150.3 billion the No. 1 U.S. carmaker saw in 2011.

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