The Greek government has staved off bankruptcy and the threat to its Euro membership by winning enough support for its bond swap deal to qualify for a second Euro bail-out from the EU and IMF worth â‚¬130 billion.
So it looks like the biggest sovereign debt restructuring in history will achieve its aim – for now.
Greece’s finance ministry has said that, of its private investors holding bonds under Greek law, 85.8% of them had signed up to take a cut in the debts owed to them.
Of those holding Greek bonds under foreign law, 69% have so far agreed to take the ‘haircut’. The remainder have had the deadline for accepting the deal extended to march 23rd.
That makes a grand total of â‚¬172 billion in Greek bondholder value that has decided to take the deal – that equates to 83.5% overall participation out of the â‚¬206 billion in privately owned Greek debt. This passes the 75% that they needed to get hold of the bail-out money.
And they need the money by March 20th to ensure that they don’t default on a large bond repayment due that day.
Greece can boost the take up by suing collective action clauses to force those have not yet agreed to accept the plan. But this could be seen as a ‘credit event’ that would trigger Credit Default Swaps (CDS), a form of bond insurance, to pay out. The exposure here is some $3.2 billion, which many think is manageable. The authority that makes the decision as to whether the Greek deal is a ‘credit event’ or not is ISDA (International Swaps and Derivatives Association), who when last asked said that it was not but that the situation was fluid and could change. Now, I would bet that once again there will be some reason given as to why this will not trigger CDS payouts even though some bond-holders will be forced (not volunteer) to take a loss.
But some are questioning whether another bail-out will help anything.
Phoenix Capital Research for example puts it bluntly: “Greece and the Euro are finished. The math is impossible. There is no way on earth that this Second Bailout accomplishes anything worthy of note. The idea that this country will somehow return to economic growth within two years, based on an additional â‚¬130billion in bailouts is outright insane.”
Especially they say as Greece has had no growth in the last five years and their economy is on a downward spiral.
Then there’s Spain and Italy to consider. What are they thinking as they watch austerity and civil unrest in Greece?