Europe: The Ferris Bueller Bailout Plan
The European flag flatters in the wind past the headquarters of the European Central Bank in Frankfurt am Main, Germany.
Forget the bulls. Let's talk about Bueller.
The financial and economic situation in Europe is getting pretty dire as Germany continues to struggle with the moral and financial implications of bailing out Greece. Pundits seems to agree that German participation is necessary to prevent a Greek default - which is why the situation in Europe right now is similar, but not exactly like, the situation in the U.S. in 2008. In 2008, the U.S. didn't know what to do and where to start. In 2011, Europe knows the answer - it's "bail out Greece at all costs" - but the problem is getting the political will to get it done.
Considering the intensity of the problem, it's nice to inject some humor into the situation. Miller Tabak strategist Peter Boockvar does that this morning, comparing the handwringing over a potential bailout to the movie "Ferris Bueller's Day Off." Boockvar wrote today:
Reminding me of the 'Save Ferris' campaign, French Budget Minister reaffirmed "the determination of France to do everything to save Greece." Adding this to Merkel's comments over the past few days, it does seem that Greece will satisfy and thus get the next 8b euro tranche from Bailout 1 in the next two weeks. Greek bonds though continue to say that soon after this, there will be a new deal on Greek restructuring and instead of a 21% haircut on a debt exchange, it will be closer to 50%. The Greek bond maturing in Aug '12 is trading at 47 and the one in Aug '13 is quoted at 49.
EC Pres said he will issue proposals soon for a eurobond but that comment was followed by dismissal by the German Foreign Minister. Moody's did downgrade the credit ratings of both SocGen and Credit Ag but are still above S&P. BNP was spared a downgrade and this morning they defended their liquidity situation. The same French minister that commented on Greece said they have "full confidence in French banks...There is no problem of capitalization, no problem of liquidity." Papandreou, Merkel and Sarkozy will all chat today at 12pm est time.
The "Save Ferris" campaign, in the movie, was one Chicago suburb's overreaction to Ferris Bueller's one-day absence from school on the pretext of being sick while he was actually playing hooky from school to dance in parades and dine in fine restaurants. Greece, it's safe to say, is not stopping to smell the roses (any more), nor does it have the popularity of Ferris Bueller. But the idea that there's a bit of overreaction seems certainly sound. That's because, as Treasury Secretary Tim Geithner told CNBC this morning, there is almost no scenario in which Europe would not save Greece or bail out major banks.
The gist of Boockvar's note is that he believes there will be a Greek bailout - it will just come at a higher price. And the idea of a "eurobond" - a bond that the Eurozone would use to finance itself, so it won't depend on individual countries - is strongly supported by the European Commission, if not Germany for the time being.
The Greeks, French and Germans are also suffering a little from the uncertainty of the European Financial Stability Facility, or EFSF. The EFSF is supposed to be one of the big bailout packages for Europe, with an expected size of 780 billion. Until now, it has only kicked in for Ireland and Portugal, but this July, the EFSF was approved to be used for a Greek bailout or other big bailouts.
Michaela Siemen, an analyst for Barclays Capital, wrote in a research note today that the foot-dragging on the EFSF approval doesn't help Greece's situation or Europe's:
Currently, ratification or approval procedures for amendments to the EFSF are taking place in national parliaments in each euro area country. These procedures have been given high priority and urgency; however, any decision is nevertheless based on national sovereignty, and negotiations in single countries could delay the approval process beyond end-September 2011.
Germany, France and Estonia have already approved the expanded EFSF, and Italy and Italy, the Netherlands and Spain will discuss it in the next few weeks. According to the note from Barclays, the countries that are likely to take the longest to vote on the package will be Malta - which is expected to face the issue in early October - and Slovakia, which won't discuss it before December.
In any case, France's willingness to jump in with words of support now is far better than finding France and Germany silent and absent for the discussions of the fate of the Eurozone.
Or in other words, it's better that the European crisis have a tagline of "Save Ferris!" rather than "Bueller? Bueller? Bueller? Anyone?"
Update: in the afternoon, after a conference call between European leaders, Boockvar concluded,
The only lifeline the Greek government has is [through] the generosity of its neighbors as they have almost zero chance of paying back in full all that is owed. I mentioned Merkel being in fantasyland yesterday, and delusion is the word today that comes to mind after seeing these Greek headlines. One would think at this point that Greece would want a more pronounced debt restructuring in order to slash their debt instead of playing this game of pretend because they're afraid to hurt the feelings of bondholders.
Boockvar bolstered his argument with a clip from Dumb & Dumber.
To add a little levity to the day, [watch this link ]()as it reminds me of what is going on with Greece right now and the rest of the European Union. Greece is still in hope phase and the Germans are finally beginning to realize the wasted exercise this is becoming. Jim Carrey of course being Greece and Lauren Holly representing the Germans (at this point of the bailouts).