Greece...

gagahouse

Graham_Devon wrote: »

Greek MP's have now approved a new law which provides a debt write down, or "debt swap".

Is this not a default?

It should be classed as a default under "restructuring" clause by ISDA determination committee - if they don't, goodbye CDS market which the member banks of ISDA make a lot of money from.

Butterfly_Brain

i think that Greece should be allowed to fall - I object to my excessive tax being paid to bail them out

lvader

Given we have a deficit in the UK of over £120bn, how much UK tax do you think went to Greece? Some government borrowed money may have gone to Greece but not tax revenue.

Graham_Devon

gagahouse wrote: »

It should be classed as a default under "restructuring" clause by ISDA determination committee - if they don't, goodbye CDS market which the member banks of ISDA make a lot of money from.

What would be the effects of this then?

I.e. what would be the effects of saying goodbye to the CDS market, and what would be the effect if this is classed as a default?

gagahouse

Graham_Devon wrote: »

What would be the effects of this then?

I.e. what would be the effects of saying goodbye to the CDS market, and what would be the effect if this is classed as a default?

By goodbye I mean if they don't enforce their rules which clearly define an involuntary restructuring (for some bondholders) as a credit event i.e default, then investors will lose all confidence (maybe this is by design?) in the use and purpose of the instrument. The effect would be that bond investors will buy less or demand a higher risk premium in the interest rate to compensate for the lack of an insurance vehicle to hedge their risk. This doesn't help debt issuers both govt and corporate trying to raise funds now from the private sector to fund their bailouts or investment.

If it's classed as a default this will trigger Greek CDS, currently 3.2bn net notional, hardly a sum to be worried about in this day and age.

The main fear is that this triggers a contagion effect across the rest of the Eurozone periphery which spirals out of control rapidly. I don't buy this doom scenario, mainly because the banks are currently backstopped (they would bear the brunt of the losses in writedowns). When I see Italy and Spain 5yr CDS prices 30% lower than their peaks in November I have to conclude the market doesn't buy it either.

worldtraveller

gagahouse wrote: »

I don't buy this doom scenario, mainly because the banks are currently backstopped (they would bear the brunt of the losses in writedowns). When I see Italy and Spain 5yr CDS prices 30% lower than their peaks in November I have to conclude the market doesn't buy it either.

But surely the major reason that CDS prices are considerably lower since November is not necessarily related to a perceived lower risk, it's surely much more the case that investors who have wanted to hedge against, or speculate on default, could no longer trust the sovereign CDS. They therefore sold them and took different actions such as reducing their exposure to default, or hedging in some other way, such as shorting a country's bonds.

So IMHO it's probably more a case of they don't buy them (CDS), than they "don't buy it" (doom).

gagahouse

worldtraveller wrote: »

But surely the major reason that CDS prices are considerably lower since November is not necessarily related to a perceived lower risk, it's surely much more the case that investors who have wanted to hedge against, or speculate on default, could no longer trust the sovereign CDS. They therefore sold them and took different actions such as reducing their exposure to default, or hedging in some other way, such as shorting a country's bonds.

So IMHO it's probably more a case of they don't buy them (CDS), than they "don't buy it" (doom).

If their respective bond yields had stayed at the high levels of november, instead of also falling, I would agree with you. Also remember ISDA hasn't made the determination yet, so it's difficult to say now that investors are shunning CDS as a hedge. Interbank spreads have narrowed too, I just don't see any evidence the market is pricing in massive contagion on the back of a Greek CDS triggering.

pineapple

CLAPTON wrote: »

Leaving the Euro is a sensible proposal given their circumstances;
one can be in the EU without being in the EURO (some other well known countries have this arrangement without becoming third world countries with oxfam style poverty or miltary dictatorships.)

Whispers the word 'Iceland'....

Mrs_Bones

The deal on the bailout for Greece seems increasingly to be one done in theory but not yet practice.


German cabinet minister calls for the Greek euro exit

Germany's interior minister called for Greece to leave the euro zone on Saturday as hopes that the world's richest countries would stump up more cash to help the IMF fight Europe's debt crisis faded.

Becoming the first member of Germany’s cabinet to openly call for a Greek exit, Hans-Peter Friedrich told Der Spiegel magazine that Greece’s chances of restoring its financial health would be greater outside the euro.
“I’m not saying that Greece should be thrown out but rather to create incentives that it can’t say ‘no’ to,” he added.

worldtraveller

European leaders are braced for the eurozone’s first ever sovereign default this week as Greece’s efforts to secure a €206bn (£172bn) “voluntary” bond swap looks increasingly unlikely.

Authorities in Athens are ready to enforce the controversial collective action clauses, or CACs, to impose the restructuring deal on all bondholders as the number of voluntary agreements look set to fall short of the required amount.

Credit rating agencies have warned they will declare Athens to be in default if the CACs are triggered which would be a dramatic culmination to a three-year rollercoaster ride for Athens, the eurozone and global markets.

The Telegraph