Greek non-default deal not running smoothly

I thought I should flag this since it is a cornerstone of the present European sovereign debt crisis strategy. Last month the EU worked out a deal whereby Greece’s private sector creditors “voluntarily” exchange the debt they are due for new debt that constitutes a write down of 50%. But now it seems that the EU is only going to get 70-80% of private creditors onboard. This deal was structured so as to prevent both credit default swap triggers and the ECB’s taking losses. And with only 70-80% participation, the deal is not going to pass.

Putting a happy spin on things, Institute of International Finance (IIF) Managing Director Charles Dallara said "we hope to find an agreement with Greece within weeks.” The IIF is an international banking group, which is coordinating private creditor negotiations. Dallara went on to say that “we could speak with direct confidence of 70% to 80%…I can easily imagine a situation in which participation is very, very high."

Translation: we are seriously worried that this deal is falling apart. I don’t want to lie outright, so I’ll just say that we can “easily imagine” it working.

Meanwhile in Greece:

Antonis Samaras appeared to harden his stance further, questioning the reforms that the coalition administration has pledged to see through.

Samaras called for “a change to the failed economic policy, a shift toward restarting and overhauling the economy.”

Sources in ND said they believed the standoff would be solved when Papademos sends a letter to EU officials with reassurances that the terms of the debt deal will be met. But EU officials also want written guarantees from Samaras and outgoing Premier George Papandreou.

Samaras’s insistence on not signing is widely regarded as posturing, chiefly to appease ND MPs who disapproved of his decision to enter a coalition with the outgoing Socialists.

Translation: Austerity isn’t working. We want to voice sympathy for a pro-growth approach for mass consumption as elections are coming but we will cave if pressure is applied.

And, at the IMF:

“It’s important that the unity government now shares its commitment to the implementation of the economic program” and the decisions agreed by European leaders last month, IMF spokesman David Hawley told reporters today. “Once broad political support” for the measures “is assured, then we can proceed with completion” of the review and the release of the tranche.

Translation: Greece won’t get on red cent from us until they fully capitulate and agree to the austerity measures we deem necessary to put it on a sustainable path.

Greek Prime Minister Lucas Papademos has three months to implement his program but he needs the 8 billion euros from the first bailout package by mid-December or Greece will default. The IMF is funding 2.2 billion of that money.

You can see that this deal is not proceeding smoothly.


Europe eviscerated the sovereign CDS market


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.


  1. There are two, and only two, long-term solutions for euro nations:

    1. Return to Monetary Sovereignty by re-adopting their sovereign currencies
    2. The EU to give (not lend) euros to member nations as needed.

    Those who do not understand Monetary Sovereignty ( do not understand economics.

    Rodger Malcolm Mitchell

  2. Saw that. In fact, It started making the rounds because I posted it two days ago.

  3. David Lazarus says:

    To be honest I was surprised that they even accepted the deal. The fact is that if the banks are wiped out else where the national governments will have to step in to save a banking system for its citizens and businesses. 

  4. Anonymous says:

    To be honest I was surprised that they even accepted the deal. The fact is that if the banks are wiped out else where the national governments will have to step in to save a banking system for its citizens and businesses.