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Be Honest – The European Debt Deal Was Really A Greek Debt Default

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Once the euphoria of the initial announcement faded and as people have begun to closely examine the details of the European debt deal, they have started to realize that this “debt deal” is really just a “managed” Greek debt default.  Let’s be honest – this deal is not going to solve anything.  All it does is buy Greece a few months.  Meanwhile, it is going to make the financial collapse of other nations in Europe even more likely.  Anyone that believes that the financial situation in Europe is better now than it was last week simply does not understand what is going on.  Bond yields are going to go through the roof and investors are going to start to panic.  The European Central Bank is going to have an extremely difficult time trying to keep a lid on this thing.  Instead of being a solution, the European debt deal has brought us several steps closer to a complete financial meltdown in Europe.

The big message that Europe is sending to investors is that when individual nations get into debt trouble they will be allowed to default and investors will be forced to take huge haircuts.

As this reality starts to dawn on investors, they are going to start demanding much higher returns on European bonds.

In fact, we are already starting to see this happen.

The yield on two year Spanish bonds increased by more than 6 percent today.

The yield on two year Italian bonds increased by more than 7 percent today.

So what are nations such as Italy, Spain, Portugal and Ireland going to do when it costs them much more to borrow money?

The finances of those nations could go from bad to worse very, very quickly.

When that happens, who will be the next to come asking for a haircut?

After all, if Greece was able to get a 50% haircut out of private investors, then why shouldn’t Italy or Spain or Portugal ask for one as well?

According to Reuters, German Chancellor Angela Merkel is already trying to warn other members of the EU not to ask for a haircut….

Chancellor Angela Merkel said on Friday it was important to prevent others from seeking debt reductions after European Union leaders struck a deal with private banks to accept a nominal 50 percent cut on their Greek government debt holdings.

“In Europe it must be prevented that others come seeking a haircut,” she said.

But investors are not stupid.  Greece was allowed to default.  If Italy or Spain or Portugal gets into serious trouble it is likely that they will be allowed to default too.

Investors like to feel safe.  They want to feel as though their investments are secure.  This Greek debt deal is a huge red flag which signals to global financial markets that there is no longer safety in European bonds.

So what is coming next?

Hold on to your seatbelts, because things are about to get interesting.

Around the globe, a lot of analysts are realizing that this European debt deal was not good news at all.  The following is a sampling of comments from prominent voices in the financial community….

*Economist Sony Kapoor: “The fact that a deal has been agreed, any deal, impresses people. Until they start de-constructing it and parts start unravelling.”

*Economist Ken Rogoff: “It feels at its root to me like more of the same, where they’ve figured how to buy a couple of months”

*Neil MacKinnon of VTB Capital: “The best we can say is that the EU have engineered a temporary reprieve”

*Graham Summers of Phoenix Capital Research:

First off, let’s call this for what it is: a default on the part of Greece. Moreover it’s a default that isn’t big enough as a 50% haircut on private debt holders only lowers Greece’s total debt level by 22% or so.

Secondly, even after the haircut, Greece still has Debt to GDP levels north of 130%. And it’s expected to bring these levels to 120% by 2020.

And the IMF is giving Greece another $137 billion in loans.

So… Greece defaults… but gets $137 billion in new money (roughly what the default will wipe out) and is expected to still be insolvent in 2020.

*Max Keiser: “There will be another bailout required within six months – I guarantee it.”

The people that are really getting messed over by this deal are the private investors in Greek debt.  Not only are they being forced to take a brutal 50% haircut, they are also being told that their credit default swaps are not going to pay out since this is a “voluntary” haircut.

This is completely and totally ridiculous as an article posted on Finance Addict pointed out…

We now know that private holders of Greek bonds will be “invited” (seriously–this was the word used in the EU summit statement) to take a write-down of 50%–halving the face value of the estimated $224 billion in bonds that they hold. This will help bring the Greek debt-to-GDP ratio down from 186% in 2013 to 120% by 2020. The big question–apart from how many investors they will get to go along with this, given that they couldn’t reach their target of 90% investor participation when the write-down was only going to be 21%–is whether this will trigger a CDS pay-out.

That this is even up for discussion is mind-boggling. These credit default swaps are meant to be an insurance policy in case Greece doesn’t pay the agreed upon interest and return the full principal within the agreed timeframe. If they don’t pay out when bondholders are taking a 50% hit then what’s the point?

European politicians may believe that they have “solved” something, but the truth is that what they have really done is they have pulled the rug out from under the European financial system.

Faith in European debt is going to rapidly disappear and the euro is likely to fall like a rock in the months ahead.

The financial crisis in Europe is just getting started.  2012 looks like it is going to be an extremely painful year.

Let us hope for the best, but let us also prepare for the worst.

  • Lets face the facts folks, we are in the midst of the biggest debt bubble the global economy has ever seen. When it bursts, it will not be pretty for most. To learn more about how YOU can become a part of our movement to restore personal wealth and freedom please visit:

  • The Greek bailout is no different than any other repackaged toxic asset. We should at least learn by observation, the finer points of working the Bait=And-Switch. No real money actually changes hands and the distracting sideshow is all numbers on digital ledgers kept by creative accounting. There are far more real events coming. History shows us what they are.

  • James

    Man, is this stupid or what? If I were an investor and bought “insurance” on my bond I would want to be paid. I know that this is a massive game of chicken because if a “credit event” keyes the cds market,where there is so much leverage, I would bet that 50% or more of the counterparties would default and bond holders would get nothing. What a scam!! I am so glad I don’t have much money and can sit back and watch the fat cats squirm.

  • Stop And Listen, What Is That Noise I Hear In The Distance, No It Can’t Be But,But It Must Be
    The Churning Wheels Of The Mighty Government Printing Press Spitting Out More Money. Hurray,
    Hurray, Europe Is Saved,There Will Be Dancing In The Streets,Liqour Will Flow,People Will Be Shouting “THe Crisis Is Over,The Crisis Is Over”
    Tax Cheat Geithner Made It Perfectly Clear The Other Day That The U.S Would Not Let Europre Collapse. So When Reality Sets In And The Hangover Begins I Can Only Imagine The “Sick Feeling” That Will Come With It. This Comment Has Nothing To Do With This Article, But IT Really Pisses Me Off. Obama Bin Laden Was On The TV The Other Nite Saying “That Americans Were Soft” Now Who The F##K Is This Clown To Be
    Making That Statement,What Has He Ever Done In
    His Life That Was “Hard”.I Don’t See Blisters Or WorkHardened Hands,How Hard Is It To Lie,Cheat,And Steal, Yeah,A Real Brow Sweating
    Hard Job.Hell,They Do Not Even Drive There Own
    F’N Car,No They Have There Own Personal Drivers For That, Yes,Politicans Have A Very Hard Job,
    I Feel Very Sorry Them THat There Lives Are So Tough. It Makes Me Sick To My Stomach And I Believe I Have To Go And Puck.

  • mondobeyondo

    Yikes!! Gotta love those rising bond yields, huh? For those who don’t quite get it, it goes something like this: Imagine you take out a loan at your favorite huge financial institution, and overnight they decide to hike up the interest rate to 29 percent or something even more insane. You make every effort to sacrifice and cut back to pay the loan. You eat ramen soup 7 nights a week and wear Levi’s with holes in the knees. (That’s called “austerity”, folks. But now it’s on a personal level.)

    And then you stomp and scream and march to Bank of America with torch and pitchfork in hand, saying you can’t possibly pay back your loan at 29 percent. The wife/husband and kids are suffering, the power company is threatening to shut off the lights, and you’re being pushed to the brink of bankruptcy. A major setback or a serious health crisis, and you’re not just toast, you’re buttered toast. Your goose is cooked. (Can’t think of any other superlatives. Ha!) Bankruptcy court, here we come!

    That’s essentially what’s happening to Greece and Italy. That’s why the Greeks are taking to the streets and rioting. They won’t be able to pay it back. They are in serious trouble, along with several other European countries. Along with the U.S. too.

    • TK

      Great analogy!

      The US will feel some very real pain within the next few years because of the massive amount of money we owe.

      Our goose is cooked!


    • mark c

      i guess you should have read the fine print,that
      stated they can up your interest rate at will!
      or better yet never gotten the loan . you would still be eating romen noodles w/o a loan.

      • George Kastrinakis

        Imagine if the bank could do that to your mortgage how fun that would be for you…..29 %

  • annie

    All I know is that I am numb from constantly hearing about this. And yet nothing happens. How long has it been now, over 14 months?? Have to pull back and quit reading about it, and live life to it’s fullest.

    • Christian for Israel

      The Government’s of the World are going to do everything they can to delay the collapse. They know and we know that it is coming. There is no way to solve this debt problem the world is facing. Go ahead and live life to its fullest, enjoy what freedom you have because at some point in the future we are going to lose it.

  • dmitry


    Thanks again for this nice post.


  • Ben Dover

    The other PIGGS will demand more. It’s mind boggling that anyone thinks that a debt load of 120% of GDP by 2020 is an accomplishment. This “haircut” IS voluntary in the sense that people would choose it over a beheading.

  • 007

    You are seeing socialism working at its finest. These countries tax and regulate real businesses to death. The rest of the welfare state is promised handouts that are unsustainable and unaffordable. These governments ultimately go bankrupt and stick it to the people that bought their bonds. You can bet somewhere under the table of this shell game a bunch of money was printed to bailout many of these investor banks. It makes me tired and sick to watch this.

  • BenjiK

    I believe the EU debt deal is a signal that the fuse has been lit. A true default of Greece would have been initially very messy, however, it would have stabilized the markets in the long run. A Greek default would have sent a signal to the rest of the EU, if not the world, that rescues and bail-outs are NOT guaranteed, enforcing the need to stabilize monetary policy, government and entitlement programs. Instead, the EU “deal” has basically sent a message of “no consequences for mismanagement”, much like our round of bail-outs did here in 2008. We all know the bubble is going to burst, but the question is, when? Are all these austerity measures and bail-outs an attempt to have a “controlled” burst, or are we just pumping up the bubble so big that we are only making any sort of recovery damn near impossible?

  • Tel

    They can all reach for their lawyers and drag it out a few years more. Expect to see litigation as the last growth industry in the Western world.

    “But investors are not stupid.”

    Ha, ha, they invested in Greece, Spain and Italy.

  • Tim

    So Michael, with the market up now, assuming you were 35 and had retirement money in a 401k that would require a large hit if you took it out now, what would you do with this money? Move it to more secure funds? Take it out? Keep investing in the same target retirement fund?

  • Mainuh1

    It seems the entire world can’t face facts, globalism has failed. Economies world-wide are propped up by non-existent funding. The printing presses keep rolling devaluing currencies. Soon there will be nothing to devalue as paper currency won’t even buy a loaf of bread. Every week prices rise higher and higher or products are reduced in volume/quantity.

    The dollar is dead, killed by the FED, abetted by the pump monkeys in the big banks, Wall St. and ordinary citizens that believe in the green shoots fairy tales.

    • bobbobbobbob

      why dont we have univer health ins cause the rebuplicanterrorist say so with their votes
      wait till u get sick–hahaha

  • I am convinced that the European Union, which was the banking crime syndicates socialist baby and was supposed to establish their new world order, is being sacrificed to once and for all collapse the American economy and Constitution, which has been a major thorn in the global elite’s side since the inception of the League of Nations. I mean, how else can you explain the idiocy of the world’s political thugs. There are only two ways to view this, either we elected the dumbest of the dumb, or they have intelligently duped the “99%” of the world into believing their lies and deception. I believe it’s the latter. Well, thanks to Obama and his Marxist agenda, I have finally woken up. I hope everyone reading this blog has done the same. For those of us who have woken up, it’s probably too little, too late, as far as saving traditional America. I mean let’s face it, we are probably going to have another crime syndicate-backed president whether it’s Obama, Romney, Perry, or quite possibly (Kansas City Fed — red flag) Cain. Ron Paul, who is the best of the lot will probably never get in because the globalist would never allow it. The public is too stupid not to see this.

  • Antonio Gonzalez

    European try pay the USA bank, remember european are nor free
    they are ocupied.

  • JackieR

    Just read an article that the Greek people are actively moving toward the BARTER system.

  • The Unicorn

    This is just smoke and mirrors,China gains access to european markets for its bailout $,the 50% haircut is a joke they take a loss on low % bonds but keep/buy high % bonds so yeah they took a haircut but the hair will grow back with interest,the $ from the CDS is just cycled back into more debt…..Greece never really got a bailout but avoided a default LOL

  • PaulF

    Regarding CDS contracts: ISDA is the org that decides what constitutes default. What comprises ISDA? The big banks that write the CDS contracts!

    That this preposterous conflict of interest was ever allowed to come into existence is just one more example of how the banksters run the world and are screwing the world.


    • Michael

      Canned chicken is good stuff. 🙂


    • GreenMountain

      I like Swanson the best. It’s fatty and unctuous. Yum. But it’s more expensive. Hormel and Snow’s are also good. A squirt of lemon and your favorite seasoning and it’s good to go right out of the can– no dishes!

    • mondobeyondo

      I’m guessing it will taste like chi… oh, never mind.
      I’ve got some canned tuna myself.


  • Greek bankruptcy was the only option. The government took on debt it did not have the authority to take on. )There are law suits going on in Greece bringing this to light.) Only to follow with a waste of that money. It is clear from months of rioting and demonstrations that the population was not going to pay the governments debt. They simp;y strike and refuse to go to work resoling in no income. No income, not income taxes to be collected by the government.

    As the article rightly points out, the Greek debt is only going to be lowered by 22%. The IMF and the ECB do not take a hit. They should have had to take the same hit. Greece needed its total debt reduced by 75% or more along with austerity to balance their budget. With this deal, Greece will have to continue to borrow. So this is not a solution, they just slowed down the meltdown. When the Greek people realize that their pension fund just took an18 billion euro hit, the riots will go to the next level.

    Yes, a credit premium will be built into government bond rates going forward. What is stupid, is that there never was a credit premium in wobbly government debt. There is no doubt that higher rates will push many other countries over the edge. With higher rates, governments for the first time just might balance their budgets instead of running 3+% deficits every year which is simply the slow road to bankruptcy. Guess what, governments in the western world is at the end of the road.

  • orsobubu

    Europe will emerge from this debt crisis more strong than ever; yes, it’s possible some frightening shakes will occurr, but the road is paved towards a stronger economic and political centralization, where singles countries transfer sovereignity to the union, so to be ready for the apocalyptic wars to be fighted in africa, asia etc. And: it’s probable that european citizens will change their mind seeing Europe like the begnin savior of their ass, so a new fascist “strong man” could capitalize on this ideology and lead the masses in military adventures

    • McKinley Morganfield

      Au contraire! Europe will emerge into chaos. Yet, you are correct that the chaos will lead to war. Europe has long been the hot house of ‘tribal war’ (much more so than Africa). The last 65 years have been but a breathing space leading up to another war.

      • Paul

        Define chaos.

        Proponents of the chaos theory would say in chaos you find the greatest creativity, while in the greatest order there is only stagnation.

  • JustanOGuy

    Socialism and Big Government end up failing in Europe… Old news and No surprise.. so what’s the big deal? Some big banksters lose money? Better off getting Americans prepared to protest another bailout “or there will be a financial collapse” nonsense from the big Government socialists in D.C.

    Worry more about California’s eventual default.. that Broke @#$ state is really racking it up like they expect a Federal Taxpayer Bailout.

  • The Golden Child

    yeah pretty much. my guess is when the next one goes off, the other ones will too

  • “I’ll gladly pay you Tuesday for a bailout today”. Bailout, hamburger. Same thing.

  • old soldier

    Good article. Feel this Greek “deal” could be the beginning ……of the fall of the House of Cards: first Europe, then … Agree 2012 will be painful and could mark the beginning of the end of the U.S. as a world power. Look at history and you will see the rise and fall of civilizations like Greece, Rome, France, England as major powers. The U.S.peaked as a world power in the Fifties and early Sixties. Now, we’re in downward spiral.

  • Maria

    Yes, the leaders we have followed for far too long have destroyed the world’s economy. Forget them. Just for a few minutes out of your life each day, forget what these people are doing to the world. Because something even more important is happening. People are realizing there is another way.

    Please, just take a few minutes….

  • gary2

    as long as the banks take a haircut. I heard they took a 50% haircut. if true its a good start. Break up 2 big 2 fail.

    • a cruel accountant

      Hey Gary

      Aren’t the greeks socialist?

    • Mal R.

      Hey Gary

      Don’t the Greeks already tax the rich?

  • JR

    If credit default swaps can be re-defined to mean anything, then they mean nothing. Which means people will only invest in *real* bonds, or in places like Greece, rates go even higher to account for risk.

    Thanks so much for this, all you post-moderns/truth is relative/Yes we can chanters. You have just shot yourselves in the foot, and injured those around you

  • Erin

    Great summary Michael. It sure took a long time for this latest hairball to get coughed up by the eurocrats and less time than the blink of an eye to go Eww, not again.

    What I find most distressing is the lack of willingness of people to understand what is wrong. The solution that keeps on getting getting put forth is to sacrifice more taxpayers to fat dragons. I have yet to hear from anyone of a viable proposal to go on a dragon slaying crusade.

  • ScoutMotto

    After reading up on Greeks bartering to get by, I started to ponder a variety of items and their respective shelf lives. Coffee and filters, whiskey and other spirits, anything that will keep on a shelf for a while. Hygiene products as well.

    • Mal R.

      “After reading up on Greeks bartering to get by”

      Do you have some links to that type of info?

  • mondobeyondo

    Is Greece bankrupt? Yes, they are.
    Is Europe bankrupt? Yes, it is.
    Is the U.S. bankrupt?
    We were bankrupt several years ago.
    But we’re still playing the war game. Who’s next on the bombing list? Sweden? Cameroon? How about Switzerland?

    • mondobeyondo

      Anyone want a little “shock and awe”?!

    • mondobeyondo

      YEAH!! Bomb the Swiss! And then steal their chocolate!!

      Sorry. That’s not funny. I apologize.

  • Michael

    Max Keiser had an interesting take on the Euro “deal”….He says that there was no 50% haircut for bondholders, and that bondholders were bailed out with money from derivatives and inflation, which is why the stock markets, gold, and silver went up.
    It makes sense, but I wonder how he knows what really happened.

  • William

    Well, you did not think the Bilderbergers/Illuminati/Freemasons would let part of their plan for domination go down, did you?? This is all right out of the Grande Orient……

  • bobbobbobbob

    the greeks have dental and medical ins u have rottenteeth and u dieinthestreet (like that woman vet incalf hit on the head) amerikkka=failedstate

  • mondobeyondo

    They tried. Greece spun the Wheel of Fortune. and they hit the “Bankruptcy” space. Too bad. Should have tried a better game, like “The Price Is Right”.

  • Paul

    “and investors are going to start to panic.”

    Oh come on. Don’t call them investors, call them by their real name: speculators.

    Investors have nothing to worry. Just the opposite. Anyone, who invested in the insulation of his house, for example, will save heating costs.
    Anyone who planted a tree will reap the harvest.

    I don’t care much about speculators.

  • Morpheus

    Our real problem is that we are approaching peak everything and we’re operating at less than 50%. The approach to peak everything has accelerated because everyone is trying to emulate America. The biggest user and waster of the planets resources. We live on a finite planet, but the fools would have you to believe that there can be infinite growth. A first year math student can figure this out and tell you we’re all crazy, It’s unsustainable. And it’s going to hurt.

    OsiXs (Common Sense 3.1)

  • mondobeyondo

    Tune in this week for “My Big Bloated Greek Euro Divorce”. Courtesy of Germany.

  • Syrin

    Keynesian based economies failing across the world. To the surprise of no one familiar with economics, specifically Austrian economics. Socialism lite- just like full on socialism is a failed system. we’re learning this in the US as we have a system far more akin to socialism than capitalism.

  • jerry O

    This article is really good.

    The deal they struck up is
    only a band aid to help keep
    things together a little longer.

    You are going to find in a very short
    time that this is not going to work.

    Greece and the EU will fall and
    we will see major chaos around
    the world.

    Fortunately there is hope.

    I am so glad I discovered a
    site put together by a millionaire that
    has totally changed the way I think and
    how I react to this situation.

    We are about to see massive wealth

    Did you know that there were more
    millionaires created during the depression
    than at any other time in our history.

    We are about to see the same thing happen

    See what one millionaire has predicted
    by researching the past.

    His findings will shock you yet will
    prepare you for what is to come.

  • jim snell

    Taxation without representation:

    Obama’s call to tax the rich is the last attempt to grab any remaining wealth not already consumed by the toxic debt and unauthorized spending like kids in a candy store.

    Rtaher than getting approval for any hike in expenditures and whether the population agreed, those responsible for representing us simply spent with abandon and stuffed it on the credit card.

    The supposed servants of our government should be arrested for mal-feasance and fraud and failing to repreaent us the population.

    Unapproved debt is taxes on the population except done without our approval.

    Fire the load and immediately cut congress in 1/2 to save what little money we have left.

    The old kings of yore nor the pharaoh’s eber dared to spend the money as run up by all the unapproved debt and spending.

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