"The Beginning Of The End" Or "The End Of The Beginning"

This morning it is reported that the restructuring/swap of Greek Government debt has been received sufficient agreement to proceed and wipe over €100bn of the National debt.I won't go into the numbers other than the summary that this represents a loss of over 70% to holders.

So holders have accepted 100% of something, ie circa 25-30%' rather than 0% of anything. It was made clear that there would be no better offer and that without agreement the outcome would be imminent default. This was something of The best of two bad outcomes, yet was not certain. It will hit French and German banks/investors hardest.

This is technically a "voluntary" haircut, but I can think of no other situation where a government of bank would voluntarily accept that loss. I wonder what would happen should I try that with my mortgager or the tax authorities? The alternative must be as inconceivably bad as I have suspected and previously blogged.

There are some further developments to track. ISDA,the International Swaps and Derivatives Assocation meet this afternoon to "determine" whether this voluntary arrangement is a credit event that will trigger payments under existing CDS or Credit Default Swaps. These are essentially insurance against default provided by other banks. Should it be judged as an event it seems that the payout will be much lower than expected at €3.2bn.

In practice the amount is insignificant and I suspect will be lost in the noise of the main event.In itself I doubt it will trigger further failures.

Back to the topic of the post.acceptance of the swap was a condition of the overall European bailout. Another key piece is the cuts in Greek spending.

The markets have responded positively to this news, indicating that they saw a real risk of it not happening. So we have cleared this hurdle, but for sure there will be more. This still looks like beings bumpy ride so we had better keep our seat belts on and remain braced for a crash,at least for a little while longer.