Euro Debt Collapse Nearing: ‘The Locks of the Approaching Storm’

Three major debt defaults are now stalking the European banking system at once.

Financial press on March 1 reported the liquidation and default on EU9 billion debt, of a “bad bank” in Austria. Since these toxic assets in this bad bank — the remains of last year’s Hypo Alpe Altria Bank failure, and known as Heta “Bank” — were guaranteed by the governments of Austria and its province of Carinthia, in effect the government defaulted on EU9 billion by refusing to extend the guarantee to new losses. The government used the new Eurozone “bail-in” law to default on senior creditors, the first time this has happened (not even in Cyprus). It will have further reverberations, and not just because this is Austria of the 1931 history.

Greek government default on its unpayable debt is imminent heading into the March 4 ECB Board meeting. Some $2 billion equivalent of payments to the IMF are “due” this month, and Greek Minister of State for Coordinating Government Operations Alekos Flambouraris suggested Feb. 26 that these payments could be delayed. Greece can borrow such a sum only from Greek banks through short-term bonds, and it also has some EU5 billion in such short-term bonds that have to be rolled over at the same time. So the ECB would have to substantially raise the Greek banks’ Emergency Liquidity Agreements (ELA) on March 4 to cause a payment to the IMF — whose Managing Director Christine Lagarde has refused any delay. The ECB’s Mario Draghi is “expected” to deny such an ELA increase, playing with the fire of forcing Greece out of the euro and provoking a thorough euro crash.

At the same time Ukraine is heading for imminent default, though on a much smaller government debt than Greece. The Ukrainian economy has fallen into utter collapse and hyperinflation in the year since its association agreement with the economically dead EU. But here, the huge difference is being outside the euro, and at war with Russia, is evident; the IMF is organizing the default and debt writedown. Ukraine central bank Governor Valeriia Gontareva, defying attacks on her from Nazi Premier “Yats,” has announced more and more strict capital controls and exchange controls since Feb. 22, on orders from Lagarde (“in consultation with” Lagarde as Gontareva put it). The IMF is ordering Ukraine to impose capital controls while ordering Greece not to impose them.

“Panic must be stopped and we are doing that now,” claimed Gontareva wishfully. She also admitted:

“Ukraine has insufficient reserves, and huge capital outflow.”

Debt payments due this year are $9 billion. Lagarde is trying to get at least $10 billion of IMF funds to Ukraine ASAP, and then ask other creditors (Russia, Franklin Templeton Fund, Ukrainian citizens) for a restructuring which writes down its debt by $15 billion or more (more than 40%) in June. So the IMF is supporting debt writedown for Ukraine while demanding full payment from Greece.