The link between my "outragous call for Greek default" on Sunday and why it should/could happen

IF - and that's if German Constitutional Court decides to rule against EURO 750 Bln. package it will de-facto mean the deal falls & Greece is left to restructure its debt - also note this:

1. Spain alone needs to raise 40 bln EUR this and next month  (@ 460/70 effective rates in 10 Yrs)  - Ouch
2. European bank issuance came to a standstill last month - issuance lowest since late 1980s
3. European banks needs to finance 700 bln. EUR this and next in new debt....

The game could accelerate shortly....

Steen

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From Goldman Sachs Research today (Change in letter size my work)

Spiegel news magazine cited on Sunday from a letter the constitutional court had sent to the German government asking for more details about the €750 help package Euro-zone governments agreed upon beginning of May. The court specifically asked about an assessment of what the implications of an interim order against the help package would be. The German government, according to Spiegel, has meanwhile responded that such an interim order could trigger a "self-fulfilling expectations of a government default".

 

A ruling of the court against the rescue package would stop the participation of the German government immediately. The government could in principle try to re-negotiate the package and design it in such a way that it what be in accordance with the court's ruling. But it is unlikely that the government would get the necessary political support in the Bundestag once the court has ruled against a previous version.  

The court has now signalled that it will come up soon with a decision, which we expect to be made public either this or next week (the court is unlikely to give a date in advance). We expect that the court will not rule against the package. The court already rejected an injunction against the first EU help package for Greece and it seems to us that the first package was more questionable than the second package with respect to constitutional requirements. Needless to say that an interim order against the package would increase financial market tensions sharply, not least as there is no real plan B what to do in this case.

Source: Goldman Sach Research