As the Sovereign Enron Turns… Actually, it’s Greece

The Enron (Sovereign Edition) story continues to unfold:

BRUSSELS (MNI) – EU finance ministers will urge the Greek government to make its statistics office independent and to address methodology weaknesses in its data collection when they meet next Tuesday.

The move comes on the back of a European Commission report which showed that the Greek statistics agency revised its data many times in the period 2005-2008 and concluded that, unless the quality of the data is improved, the reliability of the information remained in question.

Commission sources say it is only a matter of time before legal proceedings are launched to force Greece to improve the quality of the information it provides.

via EU Finance Ministers To Urge Greece To Improve Statistics | iMarketNews.com.

I have not had a chance to see or understand what the Greeks were doing to manipulate their data, but the fact that a government even resorted to such tactics is absurd.

Meanwhile, Jean-Claude Juncker is going “all-in” on fiscal reform because he says two things will not happen, according to Bloomberg:

“Two things won’t happen: Greece won’t go bankrupt; but it has to make enormous efforts,” Juncker said at a press conference in Luxembourg today. “The second point is that the hypothesis that a country will leave the eurogroup or euro zone is not a question. It’s absurd.”

So he’s leaving it squarely on the Greeks to get fiscal reform right. This from the gang that can’t report straight.

Meanwhile, the market doesn’t share Mr. Juncker’s thinking. The two charts (courtesy of FT Alphaville) show: 1) the increase in the cost of protection and 2) the term structure of those protection costs:

As worrisome as the first chart is, the second is positively harrowing. The fact that credit protection at the front-end of the curve costs more than at the back end of the curve is a ‘tell’ the market is fearful – indeed frightened – that the possibility of a Greek default will occur much sooner rather than later. Is it within the next week? The next month? Or the next year? Regardless, it looks like it could happen soon, which makes Juncker’s statement about fiscal reform being the only course of action Brussels will see through an ‘all-in’ call on ‘the River.’ Alright, I’ve exceeded my quota for Texas Hold’em analogies for one post. I get it.

But Juncker’s statement tells me the EU has no idea what their contingency plan will be, because they have no contingency plan. But when you let countries adopt the currency and throw your own requirements for usage overboard, your inviting yourself nothing but trouble.

Whatever happens to Greece, the ramifications will hit the other PIIGS hard and fast. Which will bring the sustainability of the Euro further into doubt than it is already. I, for one, am expecting to see weakness both in the Euro & Yen with the dollar being the beneficiary along with commodities like oil and gold. It’s important to keep track of these other moving parts because if you’re just watching the Euro/Yen cross, there’s a lot of context you’ll miss in the markets going on around you.

At any rate, I wonder who is going to come in and do the top-to-bottom review of Greece’s statistical collection methods because they need one if anyone is going to trust their economic data ever again.