In regard to the euro zone officials insisting there will be no further haircuts:
‘The lady doth protest too much, me thinks.’
Mr. Dallara and the rest of the euro mob have as yet not come up with any reason any one nation wouldn’t be better off, as evidenced by Greece, with a whopping big tax on bond holders vs the usual tax hikes and spending cuts otherwise demanded.
Rest of Europe Shouldn’t Follow Greek Bailout: Dallara
By Margo D. Beller
Mar 9 (CNBC) — Charles Dallara, who represented bond holders in the Greek debt talks, told CNBC Friday he doesn’t expect other troubled EU countries such as Italy, Portugal and Ireland to need a similar bond swap.
“I would strongly discourage other governments, other peoples of Europe from going this route,” he said, adding the Greek situation “cast a cloud over the entire euro zone.”
None of these other countries “have the same extraordinary high levels of debt and deficits and none of them have quite the same distortions in the economic system. They are on the right path and should maintain the path of reform.”
Greece’s problems were unique, he said, and the resulting financial crisis was “extremely painful for the citizens of Greece” and “prevented the building of confidence” throughout the euro zone.
Dallara, managing director of the U.S.-based Institute of International Finance, was the chief negotiator representing private-sector holders of Greek debt in the largest bond restructuring in history.
He said he was “quite pleased” that 83.5 percent of the bond holders voluntarily accepted losses of some 74 percent on the value of their investments in a deal that will cut more than 100 billion euros from Greece’s crippling public debt.
“To see so many bondholders voluntarily deliver their bonds into this exchange is remarkable” and speaks to the desire for Europe and investors to “turn the page” on the whole European sovereign debt problem, he added.
Athens had said it would enforce the deal on all its bondholders, activating collective action clauses on the 177 billion euros worth of bonds regulated under Greek law.
That would potentially trigger payouts on the credit default swaps that some investors held on the bonds, an event which would have unknown consequences for the market.
Dallara said activating the collective action clauses was “one of the unfortunate dimensions” of the debt swap, but stressed it shouldn’t stop foreign investment in European sovereign debt.
“The issue is not just one of legal risk in investing in sovereign debt, it’s better credit analysis,” he said. “You have to understand the underlying credit risks.”
Yes, they are very happy with their ‘success’. And as we know ‘appetite comes with eating’.
The only question is: how much will the tax be next time around?
There are 3 solutions, it seems:
1. Taxpayers will pay
2. ECB will pay
3. Creditors will take a loss
Taxpayers can only pay if economy is improving and exports provide the money.
ECB would have to change ideology.
Creditors have a lot of political influence, and in general I don’t think anybody in power wants to undermine the idea that “debts have to be paid”.
In the case of Greece – it was the Germans that insisted for creditors to take a loss. If they will not insist that anymore – it will be tough to force creditors to take a loss.
Greece had a symbolically high debt to GDP number, which is now reduced – so Greece could have been an exception in the German view…
The political power to call for creditor loss should be really significant.
@Gary,
If Greeks are the ONLY ones the ECB isn’t allowed to pay for … look for lingering resentment.
They’re all going to regret the last 5 years.
@roger erickson,
resentment is already lingering. I don’t think they are are worried about that.
I am saying that it is hard to imagine creditors losing their positions in Europe.
Only hard-bitten ideologues could force the Greek bondholder “haircut”. And that was only because it hurt their ideological debt/gdp ratios.
I don’t think they are prepared to allow across the board creditor losses.
I mean – the whole point of ECB non-involvement is because it would encourage debtor countries to spend more and avoid paying the debts. Also – the whole point of Greek debt reduction was to make it “sustainable” so the Greeks would suffer for decades and keep paying. So why now to write down debts for everybody? That is the last thing they would agree to.
I think it will continue as before: austerity and occasional ECB bond buying. I doubt they will do more debt write-downs – at least not until the debt/gdp ratios will become really unsightly again.
It is actually quite funny to see ECB and the Germans struggle with the idea of ECB buying bonds. They just cannot bring themselves to fund the “lazy spenders”, even if that refusal means that creditors will have to take losses.
But, like I said, I think they allowed these creditor losses only because they think it is an exception.
I might be wrong. They might allow creditor losses again – but in both cases (creditor losses or debtor funding) banker souls bleed. It is only austerity that makes them feel a little better.
@Gary,
That sounds like a very realistic, and very depressing, assessment. Seems to be the consensus.
I’m really curious to hear what the Greek military & NATO are thinking. And if there’s any coordination with Brussels at all.
Seems there has to be some backroom agreement already. The alternative is worse to imagine.
on the other hand…
“Portugal, whose government debt is junk rated at Moody’s Investors Services, Standard & Poor’s and Fitch Ratings, risks becoming the next nation to need to restructure its debt”
http://www.bloomberg.com/news/2012-03-12/portugal-yield-at-13-says-greek-deal-not-unique-euro-credit.html
From the NYT:
“In 2008, all of Greece’s debt was held by private-sector bondholders. Before the deal concluded Friday, 62 percent of its debt was held by the private sector. Now the figure is 27 percent.”
This is the key point. From now on Greece will be at the mercy of the Troika creditors. The private (foreign) bondholders aren’t the main players anymore.
For all practical purposes Greece has become a colony of the EU. All decisions that count will be dictated from Brussels. There is no way back for Greece after this deal.
check out my post a while back on that.
the ecb in a pig driven chariot