Asia Sends the EU and the IMF to the ‘Sin Bin’

The backlash from the EU and IMF’s arguably illegal, but certainly immoral, treatment of investors in Greek bonds has begun. The blatant favouritism afforded to the ECB, allowing that institution to swap their Greek bonds for new ones not subject to the write down, has clearly angered investors. The Troika has reasoned that this anger at being fleeced would be contained within a small group of wealthy private banking clients and hedge funds who collectively wield little power. The Troika should think again…

The opening salvo came this morning from, uncharacteristically, the South Korean Finance Ministry in a statement ahead of this weekend’s G20 Finance meeting. The statement foreshadows ‘short-term bilateral loans’ to the IMF as South Korea’s contribution to the IMF’s rally call for additional funds. South Korea’s foreign reserves are around USD 320B, a small portion of which is in Greek Bonds and subject to the writedown. By calling for bilateral loans, the Koreans are clearly saying both (i) if we lend you money we want to control the contract and (ii) we want seniority, just like the ECB…

By excluding the Asian Reserve Managers’ from the ECB’s debt exchange the EU and the IMF have insulted and alienated a group of 15 or so investors that collectively control over USD 5T of investible wealth. I can imagine the difficult conversations that Mr Rumpoy from the EU and Ms Lagarde will face. They will go something like this:

Asian Finance Minister: Mr Rumpoy, Ms Lagarde, we commend the favourable treatment afforded to official lenders to Greece – but why wasn’t the same exemption offered to us? Aren’t we an official institution as well? And by the way, did you just ask for more money?…

Asia’s governments have sent the EU and the IMF to the sin bin. In their European arrogance, the gravity of the situation will not sink in at first. Historically, the IMF has been controlled by Europe but, if Asian participation is forthcoming, Asia will want control so as to avoid getting fleeced. Hence the bilateral loan suggestion.

As for Greece, that country’s leaders need to think twice about activating any CAC clause since, far from robbing rich private citizens, they will be biting the Asian hands that they are seeking to feed them. This year is that of the Dragon, which comes around every twelve years. My guess is that there will be many Dragons come and go before Asia lets the EU out of the sin bin.

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