Greece owes so much to so many that it has more leverage than you might think in this crisis

So who do you think has the leverage here?

On the one hand, the EuroZone rescue fund withheld 1 billion euros of a scheduled 5.2 billion euro payment for Greece today. Klaus Regling, head of the European Financial Stability Fund said the remaining 1 billion euros would not be released until the troika inspectors had completed their next assessment of Greece’s financing.

And on the other hand, calculations by Bloomberg show that Greece owes 400 billion euros ($517 billion) to private bondholders, the International Monetary Fund, the European Central Bank, and other creditors.

What’s that saying? If you owe the bank 1 billion euros, you’re in trouble. If you owe the bank 400 billion euros, the bank is in trouble.

Among those currently holding the bag, according to Bloomberg: Read more

Positioning for the June election moves to the top of politicians’ to do lists in Greece

Strike two in Greece.

A day after election leader New Democracy said it couldn’t form a government, Alexis Tsipras, leader of the left-wing Syriza coalition, announced terms that pretty much guarantee that Syriza, which came in second in the election, won’t be able to form a government either.

According to Tsipras today, to join a Syriza-led coalition government a party would have to pledge to

1) Cancel all impending cuts to pensions and salaries agreed as part of the bailout plan

2) Cancel all impending changes to the labor market such as rules that would make it easier for companies to fire workers

3) Abolish the law giving members of Parliament immunity from prosecution Read more

So what’s Plan B? My fear, as austerity, the EuroZone’s Plan A for ending its debt crisis, looks to be falling apart, is that there is no Plan B.

How scary and potentially dangerous can life be without a Plan B? During the last family vacation I ever took with my parents, I remember calling out from the backseat, “Hey, the gas is on empty and that signs says ‘Next exit last gas for 46 miles.” My Dad, who never wanted to stop once he got rolling, was driving and my Mom, who loved to plan was riding shotgun. Needless to say, we passed that exit without slowing. I watched, fascinated in the way that a mouse is fascinated by a rattlesnake, as the needle sank further and further below “E.” My Mom, I’m sure, was fuming. And my Dad? Did he have a Plan B? This was 1965 and we were on an almost empty stretch of newly completed interstate in Montana. What could we have done except coast to a stop and wait for a state trooper to come along—eventually? I can still feel my relief as we finally rolled into a gas station. I don’t think my father was joking when he said, “I’m never seen this car take so much gas.” I know my mother didn’t find it funny. (And as I said, it was the last family vacation we ever took.)

My Dad lucked out. His lack of a Plan B didn’t leave us stranded on the side of a deserted highway. The EuroZone countries don’t look like they’re going to be that lucky. If they want to avoid another—and quite possibly more damaging—round in the euro debt crisis, they need a Plan B. But maybe, just maybe, there’s a glimmer of a Plan B emerging from the unlikeliest of sources, French Socialist, anti-European fiscal discipline pact presidential candidate Francois Hollande.

And not a moment too soon: On April 26 Standard & Poor’s cut Spain’s credit rating to BBB+ from A on concern that Spain’s economy will continue to contract and Spain’s government will have to bail out the country’s banks, and then need a rescue itself.

Plan A looked in great shape just a few months ago. On January 30, 25 out of the 27 European Union countries agreed to sign onto a German-sponsored pact that was designed to ensure budget discipline among Europe’s economies. It was a moment of triumph for German Chancellor Angela Merkel, who had pushed to make a promise of budget discipline binding and for EuroZone politicians who had argued that a tighter fiscal union with stricter budget limits was the way to solve the euro debt crisis. “It is the first step toward a fiscal union. It will certainly strengthen confidence in the euro area,” European Central Bank President Mario Draghi said then. The logic was simple—countries would demonstrate budget discipline by passing austerity budgets with big cuts to spending and significant increases in taxes and that would restore financial market confidence in Ireland, Portugal, Greece, Spain, Italy or France. That would then enable these countries to borrow in the financial markets at reasonable interest rates. Growth would then resume—aided by economic reforms passed along with the austerity measures—and the debt crisis would be over.

But now, just about six weeks after European leaders actually signed the treaty embodying that “solution,” it is in tatters. Spain has already tried to unilaterally reset its budget deficit targets for 2012. A coalition government in the Netherlands has had to resign when a coalition member refused to support a budget designed to get the country’s 2013 budget deficit down to the 3% European Union target. On April 25 in Ireland the country’s union movement said it couldn’t support the treaty in the upcoming referendum. Opinion polls show 30% of Irish voters in favor with 23% against and a huge 39% undecided. An Irish No vote, like that of 2008 when Ireland initially rejected the Lisbon treaty that amended the basis treaties that are the foundation of the European Union, wouldn’t kill the budget responsibility pact, but it would create a financial market crisis since that pact says that any country that rejects the pact is ineligible for funding from the European Financial Stability Facility that currently underwrites Ireland’s rescue package.

But the biggest blow to Plan A has come from France where challenger Hollande has run on renegotiating the budget discipline pact and incumbent Nicholas Sarkozy has moved closer and closer to that position in an effort to catch up before the May 6 second round decides who will be the next president of France. To stand any chance of winning Sarkozy must move closer to the anti-euro stance of the National Front’s Marine Le Pen. Le Pen’s extreme right wing party came in a strong third with 18% of the vote (to Sarkozy’s 27% and Hollande’s 28.6%.)

Plan A has run into two big problems. Read more

It’s only Portugal, true, but the trend is ominous for all the EuroZone countries trying to meet austerity budget deficit targets in 2012

Today the Bank of Portugal cut its forecast for the country’s economic growth to a 3.4% drop in GDP in 2012 from the central bank’s January forecast of a 3.1% decline. The Portuguese economy contracted by 1.6% in 2011.

The central bank also cut its already barely positive forecast for 2013 from growth of 0.3% to a projection of zero growth for next year.

The Bank of Portugal now forecasts that investment will drop by 12% in 2012 and price consumption will fall by 7.3%. Exports will climb a forecast 2.7% in 2012

Like Greece and Ireland, Portugal needed a bailout–$104 billion—from the European Union, the European Central Bank, and the International Monetary Fund as its borrowing costs soared and the country found itself shut out of the international bond markets. That bailout was predicated on an austerity plan of budget cuts and tax increases that would bring the country’s deficit under control and allow Portugal to return to the financial markets in 2013.

Snowball’s chance in Oporto. Read more

It looks like the participation in the Greek debt swap has passed the magic 75% threshold. Both Reuters and Dow Jones are reporting that number in the last hour quoting sources in the Greek government. A meeting of the Greek cabinet has just ended with Finance Minister Evangelos Venizelos saying that the debt swap is going well.

A 75% participation rate would push the swap above the 75% threshold that the Greek government says is its minimum for proceeding with the offer. A 75% participation rate is also above the 66% level that would let the Greek government invoke collective action clauses on 90% or so of the government’s outstanding debt and force holders of those bonds to participate in the swap.

The government has said that it will post the results for the swap offer, which ends tonight, on the website of the Greek Treasury at 6 a.m. Greenwich time tomorrow. (If I’m doing the conversion right that is midnight New York time.) Here’s a link to that Treasury website https://www.bondcompro.com/greeceexchange/genLanguage.asp