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Saturday, February 18

18th Feb - Weekender: ECB bond swap special

The week's main event was the never-ending Greek crisis. Eurogroup will supposedly agree on Monday to go ahead with the second bailout package and ECB has announced a bond swap of its Greek holdings. I've included all even remotely relevant articles on that topic, as ECB's bond purchases and its existing holdings, functioning of rescue vehicles and the reactions of the credit rating agencies and possible fallout from CDS-triggering will set an important precedent to Portugal's (and possibly other countries) coming haircuts. Probably early next week there will be more coherent writings on these topics.


EURO CRISIS: GENERAL
Euro Area Portfolio FlowsEconoMonitor
Euro area residents are bringing assets home, or repatriating capital. Foreign residents are moving capital out of the Euro area by selling euro assets. Either is rare, but both happened in 2011.

Auditor: EU agencies mismanaging their budgetseuobserver
A report by the European Court of Auditors has found problems in the way the EU's 31 agencies manage their budgets. The findings are likely to fuel the debate about the usefulness of the bodies in a time of austerity.

EZ Press Summary (17-Feb)openeurope
Greece to face further demands before it can get its second bailout; ECB swaps Greek bonds to protect itself from a forced Greek default

European Sovereign Bond Protection Facility launchedEFSF
Under the partial risk protection, ESBPF would provide a partial risk protection certificate to a newly issued bond of a
Member State. The certificate could be detached after initial issue and could be traded separately. It would give the holder an amount of fixed credit protection of 20-30% of the principal amount of the sovereign bond. The partial risk protection is to be used primarily under precautionary programmes and is aimed at increasing demand for new issues of Member States and lowering funding costs.

Too Late for the Euro?Columbia Magazine
A decade into its ambitious currency experiment, the Eurozone is in trouble. Business school professor David Beim, a financial-markets expert and former investment banker, says the euro's hour of reckoning is at hand.

EURO CRISIS: ECB’S BOND SWAP
ECB to Exchange Greek BondsWSJ
The exchange is aimed at protecting the ECB and the 17 central banks that make up the euro from any efforts to force the central bank to take losses through collective-action clauses connected with negotiations between private-sector creditors and Greece

ECB Greek Bond Swap Plan May Subordinate Holders, Weigh on Euro, UBS SaysBB

Could ECB Greek Bond Swap Trigger Ratings Default?MarketBeat / WSJ
The major ratings firms have recently stated that an exchange would constitute a default

ECB Greek Plan May Hurt Bondholders While Triggering Debt SwapsTF Market Advisors

Decoding the ECB bond swapopeneurope
Good FAQ

Is The ECB Debt Swap A Step Towards Greek Default? TF Market Advisors
This step would make it easy for Greece to default on old bonds and remain current on new bonds. Maybe that encourages greater participation, maybe it won’t. Why would Greece cut a special deal with the ECB that is so favorable to the ECB? Did they negotiate continued ECB support for its bonds as part of the exchange deal?

ECB seniority and dirty handsalphaville / FT
In short, yes not getting CAC-ed up leaves the ECB senior in a crummy way, but a voluntary write-down in the SMP remains on the table, at somewhere between the purchase and par price, surely. In other words the ECB offloading its paper profit. However that ECB seniority now depends on what the purchase price actually was, and how far away it is from the PSI writedown of 75 per cent.

ECB Debt Swap ‘Puts Dagger In Heart Of Europe’s Bond Market’MarketBeat / WSJ
Mark Grant: Central bank has subordinated the interests of private bondholders to their own balance sheet

EURO CRISIS: GREECE
What Happens if Greece Doesn’t Get a Bailout? (16-Feb)TIME
The fact is, the fallout from a Greek default is impossible to predict. That’s why in the end, if I had to make a bet, I’d say the Greeks will get their bailout.

The Greek Crisis: Five Key Developmentsopeneurope
Greek electorate moving to extremes, politicians against austerity, ECB swaps Greek bonds, Schäuble rejects bridge loan

Greek Bailout Or Deliverance?TF Market Advisors
The market is happy because it looks like PSI will go through and that in theory will be enough to convince the Troika to send money to Greece, so long as they live by the latest austerity package. That all seems fine, I guess, but looking beneath the headlines, it seems far worse than that.

BizDaily: Greece and privatisation 16 FebBBC (mp3)
Tim Jenkins has been looking at the privatisation process - and has talked to the man in charge of selling Greek government assets. Are the Eurozone countries lending money to Greece meddling too much in its policies? Professor Ngaire Woods of Oxford University explains how this process compares with previous IMF rescues. Plus, our regular technology commentator Jeremy Wagstaff looks into why Facebook is making a virtue of gaps in its coverage.

“Five euros left and starting to panic”To Vima / presseurop
In debt and suffering from anxiety and depression, many Greeks are turning to Ekpizo help centres for moral support. To Vima reports from a group therapy session in Athens.

Greece 1858 – plus ça changeFrankfurter Allgemeine Zeitung / presseurop
Crippled by debt, propped up by European powers, handicapped by an ineffective administration: uncompromising diagnoses of Greece’s ills are not new. The text that follows, drafted by 19th century French writer Edmond About, has re-emerged in the European press.

OTHER
Global Macro Update: Economic Data Continues To ImproveThe Short Side of The Long
Quick chart overview

The Uptick’s DownsideProject Syndicate
Nouriel Roubini: With so many risks in so many places, investors, not surprisingly, will eventually prize liquidity in their portfolios, while shunning riskier fixed assets again when these tail risks materialize. That is yet another reason to believe that the global economy remains far from achieving a balanced and sustainable recovery.

Macro Update: Economic Data Continues To ImproveThe Short Side of The Long
Quick chart overview

GS Code Theft
Goldman Sachs Code-Theft Conviction Reversed – Wired
Ex-Goldman Programmer Aleynikov’s Conviction for Stealing Code Is Reversed – BB
Ex-Goldman programmer's conviction overturned – Reuters

DIVERSION
The Boy Who Played With FusionPopsci
Taylor Wilson always dreamed of creating a star. Now he’s become one

I love my wife. My wife is dead.Letters of Note
Feynman wrote a letter to his dead wife in 1946 – and it remained unopened until his death in 1988.

How the U.S.-Iran Standoff Looks From IranView / BB

For the ECB, a French (history) lessonalphaville / FT
It seems inflation in mid-20s France had nothing to do with the business cycle and everything to do with the fear of monetising government debt. It was a rise in inflation expectations that pushed prices sharply higher.

Harvard’s Liberal-Arts Failure Is Wall Street’s GainView / BB
Ezra Klein: It’s that so many of their students end up feeling so poorly prepared that they go to Wall Street because they’re not sure what other contribution they can make. My hunch is that we have underemphasized the need to learn skills, rather than simply learn, while in college.

6 Abandoned Places That Will Make Awesome Supervillain Lairscracked