Greek Credit Writedowns! Finally…

The just announced 2GB — Second Greece Bailout — is a misnomer. We wouldn’t exactly call a deal where private creditors reschedule all maturing bond payments for the next ten or so years into a 30-year bullet with a 50+ percent effective haircut a bailout!

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By Global Macro Monitor

The just announced 2GB — Second Greece Bailout — is a misnomer. We wouldn’t exactly call a deal where private creditors reschedule all maturing bond payments for the next ten or so years into a 30-year bullet with a 50+ percent effective haircut a bailout!

We’ll leave history to judge this deal and it doesn’t surprise us nobody likes it, thinks it’s enough or that it will ever close. They didn’t when Mexico announced the terms of their Brady Plan Debt Restructuring and they probably won’t for any future restructurings, for that matter.

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But it’s debt destruction, nonetheless, and that is what highly indebted borrowers need, no? No bailout of “fat cat” bankers, investors, traders, and hedge funds unless they bought bonds at a price below the present value of the deal. * And for that we say bravo and bully for the EU and IMF!

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They both do need to distinguish and make the case to the markets that the official sector has and will continue to support Greece with new money and positive net capital flows whereas the private creditors, even after their haircut, will still extract net transfers (principal plus interest payments) from the country. It’s important that burden sharing is perceived as fair and egalitarian.

Finally, we are baffled by the journalists who report that now the deal is done it will unleash the funds to make the $14 billion March 20th bond payment. Unless we’re really missing something, and we may be, but won’t that bond payment be part of the restructuring? No doubt the vultures are all over this one.

The more important question for investors and traders is Greece, an economy of less than 0.5 percent of world GDP, a one-off aberration or a small symptom of a greater global problem? You know where we stand.

* We’ll try to calculate the deal value when more information is available.

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