We now have reports that talks between Greece and its creditors are making progress. The big question is how big a hair cut for the creditors. "The elements of an unprecedented voluntary private-sector involvement are coming into place," according to an email from Charles Dallara, managing director of the Institute of International Finance, a Washington-based lobby group representing creditors negotiating with the government."
The Financial Times reports that private bond holders are set to lose a lot of money. "One banker said the extra interest cut would push net present value losses for bondholders from 68 per cent to more than 70 per cent, 'a level that institutions may be unwilling to accept voluntarily'. The cut was seen as offsetting the impact of a deeper than forecast recession in 2011 that has raised doubts about the sustainability of Greece's debt under the current restructuring plan."
Indeed, the bond holders are no pushover. Last week, I reported that hedge funds were planning to sue Greece if they were forced to make losses.
And even if they reach a deal, Greece is not out of the woods. Economist Nouriel Roubini has warned that there will be a credit event, regardless of the deal. "Even if they reach an agreement there are going to be so many holdouts that then they'll have a problem. They'll either pay the holdouts and that becomes expensive, or if they don't pay them you'll have a series of defaults, because they're going to stop paying them. Or the way to avoid the holdouts from being holdouts is then to change domestic legislation, to cram down the terms of the majority on the holdouts. But if that happens then the CDS will trigger and that becomes a credit event. So either way you're going to get a credit event."
Siimply put, the view is that Greece still won't be able to pay its debts, making any deal worthless.
no comment untill now