Former ECB president Jean Claude Trichet said there would be no haircuts. There were. The first Greek haircut was 21% and it was insufficient. The second Greek haircut deal was 50% and that too was insufficient. On each failed attempt, the ECB and EMU poured more money into Greece.
There is now about €200bn of Greek debt held by banks, hedge funds and other investors up from about €50bn a couple years ago.
A third renegotiation is now underway, rumored to be a 68% haircut. Clearly there would have been far fewer ramification on banks if Greece would have defaulted long ago.
Such is the stubborn arrogance of ECB, and EMU officials.
Unless another haircut is approved Greece, and still more money is poured into Greece, it will default on March 20 when a €14.5 billion bond repayment is due.
The Financial Times reports Greek bond talks edge closer to deal
Talks broke down last week with holders of close to €200bn of Greek debt after some eurozone officials called for a sharply lower coupon, or interest payment, on new bonds.
The latest proposal called for a step-up coupon starting at about 3 per cent and rising to 4.5 per cent as the bond approached maturity, one banker said. Another said the average interest paid during the life of the bond would be 4.25 per cent, a rate “that the banks would be happy with”.
The deal would amount to a 68 per cent loss for bondholders in net present value terms, according to people familiar with the talks.
Banks will be happy with a 68% loss? I rather doubt it.
Will the Deal Be Accepted?
Peter Tchir at TF Market Advisors had some interesting comments on the likelihood of the “success” of the PSI (private sector initiative) in his post Greek PSI – Headlines And Reality
The Greek PSI is once again (still) hitting the headlines. Here is what I think the most likely scenario is (80% likelihood). Read More