Greek Bailout Talks Near Point Of No Return, Gartman Offloads Gold - Forbes

The people of Athens have grown accustomed to mass protests and general strikes - Getty Images Europe via @daylife

Greek politics have once again taken center stage  the Troika (ECB, IMF, and EU Commission) try to force Greece to accept stricter austerity measures in order to receive a crucial second bail-out that will allow the country to avoid default.  Some, like Dennis Gartman, have expressed their skepticism and still believe Greece will have to default and exit the Eurozone.

German-imposed austerity versus Greek political resistance.  That's the crucial struggle, the fateful face-off global markets are being forced to watch closely.  The latest set of negotiations have, once again, very quickly approached the point of no return.

After weeks of excruciating negotiations, Greek leaders appear to have reached an agreement with creditors over the so-called private sector involvement (PSI) as part of their plan to restructure their debt.  While the actual terms haven't been disclosed (private sector creditors are expected to take a 70% haircut), the negotiations have now focused back on structural reforms.

Research by Barclays suggests the PSI has "technically been agreed [on]," but it won't "go ahead until the government has guaranteed the requested reforms."  The Greek government, headed by technocrat Lucas Papademos has already agreed to extend spending cuts to account for about 1.5% of GDP, or something like €3 billion ($3.94 billion).  But troika appears to have demanded that the country further cuts the minimum wage (by about 15% to 20%), lay off additional public sector employees (about 15,000), and end banking bonuses, among other things. Update: The Greek government appears to have accepted to trim about 15,000 workers as they work toward a final agreement, according to Trade the News.

The discussion has turned purely political, at this point.  Opposition leader Antonis Samaras has expressed concern as to how much austerity Greece can take.  But the country needs to roll over €2 billion ($2.63 billion) in debt this month and a troubling €14.5 billion ($19 billion) by March 20, making that day the de facto deadline for an agreement.

In other words, the risk of a Greek sovereign debt default is quite high.  While ECB action has lowered the risk of a credit crunch and diminished the possibility of contagion, via the LTRO lending facility, a disorderly default could easily counteract many of Mario Draghi's containment policies.

Among those doubting the Eurozone's capacity to drag itself out of this mess is Dennis Gartman.  From Monday's Gartman Letter:

Greece cannot and will not defy her creditors entirely. […]  When her next round of massive debts come due in late March, Greece will default in some fashion. It is not a matter of if Greece shall default; it is butt a matter of how she shall do so.

Simply put, Greece is toast. She cannot and she will not be allowed to remain in the EUR-zone. She owes something on the order of €100 billion, give or take ten billion or so, and she needs to roll over at least €2 billion this month and €17 billion next.

Gartman has been moving out of gold and into copper, as a response.  Europe's sovereign debt crisis has definitely impacted U.S. equities.  Starbucks, for example, noted in its latest earnings that same store sales growth in Europe underperformed.  Others, like McDonald's have seen a solid performance over in the Old Continent.  Big financial names like JPMorgan Chase have performed well in early 2012, seeing less of an impact from Europe's debt woes.

Nomura's Dimitris Drakopoulos, Euro area economist, is still hopeful for a deal.  His optimism is centered on the fact that opposition leaders, particularly the powerful Samaras, "arrived [at the meetings] with willingness to negotiate."  He expects an agreement to be reached with Papademos and troika coupled with a partial breakdown of the government, leading to either elections or a new coalition government.  "Remember that this is not just a financing package negotiation for them," explained Drakopoulos, "it is an election campaign for April."

The possibility of a complete breakdown in negotiations is also on the table, and would constitute the worst-case scenario.  If this happened, "it will be difficult for Greece to avoid a debt moratorium situation and obviously euro exit discussions will start in full force."