From David Zervos:



“I’ve always said publicly that default is out of the question,” – Trichet

“There will be no default.” – Rehn

“People fail to see the costs to both Greece and the eurozone of a restructuring: the cost to its citizens, the cost to its access to markets. If Greece restructures, why on earth would people invest in other peripheral economies? It would be a fundamental break to the unity of the eurozone.” – Papaconstantinou

Its been a great 2 years watching this thing unfold and listening to lie after lie from European officials. While it has been a calm response in global markets today, there is some justice in the world. Those folks who bought Greek bonds lost their shirts – both accrual and mark to market folks. This is a clear victory for the Euroskeptics and I have no doubt that we will see the letters “PSI” in the European headlines once again.

9 Responses

  1. It was a default whether ISDA admitted it or not. Hard to believe that there was even a small probability ISDA would say otherwise, but thankfully it did the right thing.

    And now apparently the new bonds are trading at 22% yield instead of the putative 9%. It’s less a question of whether another country will ask for debt relief and more a question of whether another one will do so before Greece asks again.

      1. @Kristjan, why that would not have been a net loss for the ez private sector?

        Looks to me that depends upon who is the issuer and buyer of the cds.
        If issuer is outside of the ez private sector and buyer inside then a default on the cds would be a net loss for the ez private sector.

      2. @Kristjan,

        Warren has said from time to time that the financial system, such as it is, is more trouble than it is worth. I tend to agree.

      3. @Kristjan,

        CDS is a private legal contract. Whether you think (as I do not) that entering into such contracts is a waste of time like, for example, reading and writing the same old crap on financial blogs hundreds of times per year (this is not directed at anyone in particular by the way, except perhaps myself), then you don’t have to enter into one.

        However, if the government were to rescind legitimate private contracts retroactively, whether directly or via discreet coercion, then that would have a chilling effect on one of the fundamental reasons that Europe is not Zimbabwe.

  2. @Trichet
    The 17 EUR countries decide for themselves how to service their debt. The ECB has influence, but no power over it.

    Default schmefault. HTM expected cashflows from holding Greek government bonds will have to be marked down. Greece did a serious Corporate Action, not calling it “default” is semantics at best.

    People invest or not depending on perceived risk and risk premium.

    From the start there never was a unity in the Eurozone when it came to covering each others debt. The fact that for some years the yield differences between Greek and German bonds were small was due to market perception, not due to a fundamental risk link between Germany and Greece.

    Only now are the Eurozone nations building some foundations, but this seems limited to secure access to capital, not outright covering each others spending, but still, the opposite of breaking is going on.

    @Folks entering into and trading in derivatives of Greek debt governed by book sized ISDA master agreements.. why on earth should anyone take you gamblers and hedgers into account?

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