His main coalition partner, the Northern League, said the party would not accept a temporary, technocrat government and would push for immediate fresh elections.

"We think elections are the only way, the only solution for the country," spokeswoman Nicoletta Maggi told the BBC. "The people must decide who is going to rule them, nobody else, through the vote."

http://www.bbc.co.uk/news/world-europe-15631265

Greek Probabilites

So, Panpandreou survives (again?) with a 153-145 majority.

But the 'government' needs 180 (of 300) to secure parliamentary approval for the October 26th second aid package.

This will require a 'national government'  - and after this weeks gamesmanship this appears increasingly unlikely.

“The masks have fallen,” Antonis Samaras, head of the New Democracy party, said in an e-mailed statement from his Athens- based office today. “Papandreou has rejected all of our proposals. The responsibility he bears is huge. The only solution is elections.”

Without compromise it either be snap elections &/or Panpandreou trying to find 180 votes.

In which case - outside the news cycle babble - what price (probability) would you (the market) place on the validity of the following analysis?

“I would be very surprised if Greece doesn’t default in the next few weeks,” Lex Van Dam, who manages $500 million in assets at Hampstead Capital LLC in London. “I cannot see how the Europeans will pay the next tranche knowing that the Greeks will try and renegotiate the rest of the original Oct. 26 package once this payment has been made.”

Come Monday - without some mildly convincing form of grand coalition - I suspect it'll be uncomfortably high.

Quotes: http://www.bloomberg.com/news/2011-11-04/papandreou-is-prepared-to-step-aside-if-he-wins-confidence-vote-in-greece.html

Legals

EU treaties make no provision for a country to exit the currency, and the European Central Bank’s legal department said in December 2009 that an expulsion “would be so challenging, conceptually, legally and practically, that its likelihood is close to zero.”

A Little Context

Bloomberg earlier today: 


“The vehicle that’s supposed to borrow on behalf of countries that can’t borrow, can’t borrow,” said Gary Jenkins, head of fixed income at Evolution Securities Ltd. in London. “They should be able to tap the market under any market conditions and it should just be a matter of price.”


You almost couldn't make this up, but it is true - and true because the EFSF 10 year currently yields 3.30% - which is 130bps over Bunds.


That doesn't that sound like 'AAA' rated issuance. Not now. Not with unresolved leverage and structural issues.


This is important because - after Greece - Willem Butler estimates there is Euro 300bn <at most> left of the original EFSF loss absorption commitments/guarantees. 


And Italy - with 10 years stubbornly above 6%,  the last auction barely covered and concerns investors may avoid debt not issued under the new 'insurance' plan - needs to roll over Euro 300bn (of its Euro 1.6 trillion debt) in 2012.


The ECB has already bough Euro 70bn of Italian debt in its bond buying program. 


Per my earlier post ('Endgame Scenarios') Mr. Draghi's patriotism is going to be fully tested.

The Endgame Scenario

I have believed the Euro will survive .....

BUT only after a truly 'existential' crisis threatens its survival.

I believe that level of crisis lies ahead of us ......

BUT I'm less confident in my belief the Euro (certainly not with 16 members) will survive.

I'll defer to the impressive Willem Butler (FT: November 2nd) to outline the increasingly probable binary outcomes:

'The choice, sometime in 212 or, at the latest, 2013,  will be between a collapse in the euro area and the larger scale quasi-fiscal abuse of the ECB.'

Why?

Because 'using the ECB would be opaque, quasi-fiscal, off-budget and off balance sheet for national Treasuries.'

I strongly suspect the ECB (& the Germans) know this.

The question is how and IF we get there.

The Time & The Place - MTM

Briefly ....

Short 'Risk' = SPX; EURO 50 (or DAX) ; EURO & AUD$

Up 2+% from 'entries' on October 27th.

Carrying 1/2 position over close tonight.

Committed to core short but cautious around spiky reversals.

Patience .....

Minimum ( = enough to justify trade) targets:

SPX @ 1100
EURO-50 @ 2060
EURO @ 1.3300
AUD$ @ 0.9600

‘Whole Different Ballgame’

“If the Greek people don’t see the necessity of backing Papandreou we have a whole different ballgame,” Otto Fricke, the budget spokesman in parliament for Merkel’s Free Democratic Party coalition partner, said by phone. “If he doesn’t get a majority, then there’s no second aid package, no voluntary haircut. We’d have a potentially explosive situation, one that leaves us today baffled as to what we could possibly do next.”