ArmaGreeceddon Arrives

Run for your lives!
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Yanis Varoufakis' pocket

As you’ve probably gathered, matters Greek continued to deteriorate since we last spoke, what with the complete breakdown in talks and the calling of a referendum for five days after the first bills are due (tomorrow, FWIW) and the putting of banks in a time-out for a week to ensure that, the day after that referendum, at least, there are still some euros somewhere in Greece to be possibly maybe forcibly converted into drachmas. Yet, despite this avalanche of bad news, as of last night, the Greeks were at risk of being upstaged by those plucky Puerto Ricans.

The governor of Puerto Rico has decided that the island cannot pay back more than $70 billion in debt, setting up an unprecedented financial crisis that could rock the municipal bond market and lead to higher borrowing costs for governments across the United States….

“My administration is doing everything not to default,” Garcia Padilla said in an interview with the New York Times. “But we have to make the economy grow. If not, we will be in a death spiral.”

Luckily for the writers of extra-large, bold-faced headlines, Alexis Tsipras still had the ace in the hole.

Athens confirmed it wouldn’t be able to make a loan repayment to the International Monetary Fund due on Tuesday.

Which is not a surprise, of course, but does make the disaster that will unfold over the next days/weeks/months/eternity official. And while the conventional wisdom for some time has held that a defaulting excuse me, arrearing Greece would definitely be thrown off of Euro Island, that conventional wisdom has gone the way of the conventional wisdom that, at some point, Greece and its creditors would act like grownups and strike some kind of deal.

While the probability of Greece leaving the euro zone rose sharply to 45 percent from 30 percent just a week ago, the consensus remained - just - that Athens will stay in the euro zone….

"Greek debt negotiations will go into extra time at the end of extra time, and it is still conceivable that a solution can be found at the final, final minute to take the whole crisis into a replay a few months down the road," said Kit Juckes at Societe Generale.

"Or disaster might strike."

At the Bank of International Settlements, they’re just going to go ahead and assume that disaster will be striking in the form of a Grexit—and maybe worse.

The eurozone has already lost Greece. At least, that’s what a map included in the Bank for International Settlements’ annual report appeared to show when it was first published….

The graphic also omitted Malta, Slovenia, Slovakia, Luxembourg and Cyprus from the euro’s reach even though all are members of the currency area. The error in the graphic was later corrected.

All of which is very interesting and more than a little distressing and certainly quite confusing. And I know what you’re thinking: Where is Bill Gross, and what has he to say about the unfolding calamity?

"Pride and an ignorance of economics goeth before a fall. Reparations and austerity for Greece will cost the EU big-time."

Great. Now that that’s settled, let’s return to the larval Greece, Puerto Rico, which is practically just beginning its descent into Hellenic despair. Now that it has said it can’t pay its bills, what’s next?

Analysts believe the central government will run out of cash as soon as July, which could lead to a government shutdown, employee furloughs and other emergency measures.

“This is going to be painful for the next two to three years,” said Rep. Pedro Pierluisi, the island’s Democratic representative in the U.S. House, in an interview….

The island’s unique territorial status also means it lacks the legal tools available to U.S. municipalities or foreign countries to restructure its debt. As a commonwealth, it is excluded from Chapter 9 of the U.S. bankruptcy code, though the island has been working to change that. Nor can it devalue its currency—the U.S. dollar—or seek assistance from the IMF.

So, not Greece, but worse*, and still chock-full of hedge fund managers freaking out.

The group of investors, led by Fir Tree Partners and Monarch Alternative Capital, have been pressing Puerto Rico’s government and finance officials for months with a list of requirements that they want from the GDB, the island’s lender and the agency coordinating the deal….

Puerto Rico officials have said the terms the hedge funds are demanding are unacceptable. Governor Alejandro Garcia Padilla pushed the divide even further in an interview with the New York Times published late Sunday, in which he said creditors must “share the sacrifices” that island residents have already borne.

If creditors “don’t come to the table,” Garcia Padilla said in the newspaper interview, the “economy will get into a worse situation” and Puerto Rico will be “less able to pay them.”

Greece to Default on $1.73 Billion IMF Payment [WSJ]
Greece Will Shut Banks in Fallout From Debt Crisis [NYT]
Chances of Greece euro exit balancing on a knife’s edge - Reuters Poll [Reuters]
For BIS, Greece’s Omission Is a Graphic Error [WSJ]
‘Reparations and austerity for Greece will cost the EU big-time’ –Bill Gross [Reuters]
Panic Sets in Among Hardy Hedge Fund Investors Remaining in Greece [DealBook]
Puerto Rico’s governor says island cannot pay back $70 billion in debt, is near ‘death spiral’ [WaPo]
Puerto Rico Releases Report Calling For Concessions From Creditors [WSJ]
Puerto Rico Has No Easy Path Out of Debt Crisis [WSJ]
Munis Meet Milken as Hedge Funds Dictate Puerto Rico Terms [Bloomberg]

*And by worse we mean: Argentina.

They have some other demands too, the people said. They want the debt issued under New York law rather than local.

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