Greece...

Graham_Devon

worldtraveller wrote: »

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

I heard that even if the credit rating agencies do declare it a default, another body will overule this to stop insurance being triggered.

Don't know how much there is in this though, didn't quite catch the full story. Body was the ICDA or something??

Amuses me how if they do default, they switch from the "normal" ECB funding, to emergecny funding. Doesn't sound like much would change in my mind.

worldtraveller

Graham_Devon wrote: »

I heard that even if the credit rating agencies do declare it a default, another body will overule this to stop insurance being triggered.

Don't know how much there is in this though, didn't quite catch the full story. Body was the ICDA or something??

Amuses me how if they do default, they switch from the "normal" ECB funding, to emergecny funding. Doesn't sound like much would change in my mind.

The last few lines of the article are very important.

Last week, the International Swaps and Derivatives Association (ISDA) declared that there had not yet been a credit event in Greece so there was no need for the credit default insurance instruments to be triggered.

If the CACs are triggered this week, the committee will almost certainly reconsider its decision.

http://forums.moneysavingexpert.com/showpost.php?p=51476021&postcount=31

vivatifosi

The Philip Atticus blog has another good piece on it:
http://www.philip-atticus.com/2012_03_01_archive.html

There are, however, several main problems with this “optimistic” scenario:

a. Neither the EFSF nor ESM are fully funded: the ESM is not even operational.

b. The LTRO has been granted by the ECB to banks, with the quid pro quo that banks would purchase sovereign debt. So far, this has materialised, but given the amount of bank deposits at the ECB, it’s clear that fears have not yet receded. It’s therefore an open question whether a future financial crisis can be adequately addressed by these two mechanisms.

The third problem is that already mentioned in my earlier posts: the ECB has expanded its liabilities by over EUR 1 trillion with LTRO and over EUR 120 billion with sovereign debt purchases. There has been no commensurate expansion of its own assets. Absent a capital increase, we can expect two potential impacts in the future:

a. A euro devaluation, or
b. The exacerbation of yet another financial crisis due to doubt on ECB solvency.

What is striking to any objective observer is just how difficult it is for the Eurozone to agree upon and implement what amounts to a standard fiscal policy during a time of crisis. Any number of analysts and commentators have been warning that more firepower is needed. Instead, we have seen funding commitments but no actual funds (EFSF, ESM); LTRO rather than straightforward Central Bank quantitative easing; continual reassurances (particularly from Germany) that no more is needed—until the next crisis sweeps away Europe’s defences.

The fate of the European economy now rests in the hands of approximately 25 banks and whether they will be willing to buy higher-interest French, Italian and Spanish debt in 2012 with low-interest loans they have taken from the European Central Bank.

It’s a really strange way to run a railroad. But great business if you can get it.

sabretoothtigger

The people who decide the default status are also the people who have to pay out the CDS insurance?

michaels

I thought his was interesting - not a happening per se but more noises about keen Europeans no longer wanting to be in the eur club:
http://www.mail.com/int/news/world/1108014-major-dutch-party-backs-euro-exit.html#.1258-stage-subhero1-0

Graham_Devon

sabretoothtigger wrote: »

The people who decide the default status are also the people who have to pay out the CDS insurance?

That was the theory for suggesting it would be defined as something else.

Graham_Devon

Looks like the debt swap deal is going to be going to the wire in terms of timeframe.

Will they...won't they?! They need 75% of holders to agree. So far, it's "around" 60%. They have until 8pm GMT tonight.

Apparently if they do not get 75% of support, Greece will not get bailed out. But we know they will get bailed out regardless anyway, so it's all a bit academic really.

Mr_Mumble

There's a story in today's FT that has to be seen to be believed, the FT Eurozone crisis blog has c&ped it for all to see (14:32)

Worryingly, TEAYPOIK, the subsidiary pension fund covering finance ministry workers, followed the example of several hedge funds, investing in a three-year bond due to be repaid on March 20. Unlike the hedge funds, though, TEAYPOIK put its entire reserves of €3m into a single investment, which will be worth 75 per cent less when it matures next week, leaving the fund with barely enough cash to pay employees at the end of the month.

Crazy!

More pertinent to the bigger picture:

Embarrassingly for the government, six out of 15 state-controlled pension funds were still refusing to participate as the deadline approached. They hold a total of €3.3bn of bonds, compared with €3.0bn for the nine funds that dutifully signed up.

British local authority workers should be taking a close look at what is going on in Greece. The funded state pension funds are being told to accept the 70-75% net present value loss on their Greek government bonds along with private sector holders. This is a requirement under law, of course, and holders of Greek debt should be treated equally - except they are not. The lending by the EU, EZ, IMF and ECB is being kept whole. By not sharing in the pain the Euro 'official sector' holdouts make the losses for the 'private sector' significantly larger.

The foreign taxpayer is being treated better than the domestic state worker/pensioner. There are arguments in favour of this act. E.g. the troika wouldn't have lent the money in the first place if they thought they could lose it! However, I personally don't see how that's any different to any other government bond holder with the only difference being a couple of years, Greece is, theoretically, discriminating against longer term investors here.

Based on the Greek experience, if the manure hits the fan in the UK, local authority workers shouldn't expect their funded pensions to be protected - not to the detriment of the the fat cats in Whitehall with their unfunded pensions. Sure, all Greek state employees are feeling pain but some government employees are feeling more pain than others.

pqrdef

Graham_Devon wrote: »

Will they...won't they?! They need 75% of holders to agree. So far, it's "around" 60%. They have until 8pm GMT tonight.

The Beeb is insisting that if 75% is not achieved, there will be a default this month. Hmm.

An IMF adviser says that 90% is needed for a clear result. 75% is only enough to get the troika to reopen negotiations.

Graham_Devon

Apparently they got 80%, so everything is all OK again. For a week at least.