John Ward – DEBT SWAP ‘RESULT’: Hold The Euphoria….Validation, Scrutiny And Poison Pills Still To Come – 9 March 2012

The White House-Wall Street-Berlin-Frankfurt plan is still on track

Before everyone forgets what The Slog has said in recent days about this tiresome debt-swap mirage, let me just summarise:

1. I said plans had been put in place for a Greek default March 23rd. The last date set for bond-swap settlements announced yesterday is….March 23rd.

2. I said participation would be between 66-85%. There was a good reason for that top number, of which more later. The final uptake was 85.8%. If you believe that, you’ll believe anything. At least 1.5% was obtained through bribery, of which more at another time.

3. I said as of the night before last, participation was stuck at 74%. I’m still sure it was.

4. I said they would have to use CACs. They used CACs. I said the holdout would be between 12-15%, and could be as high as 26%. At 25 bn euros, the holdout was almost exactly 12%.

5. I said ISDA would declare a default within the 66-85% region. The Greeks got 85.8%. How convenient. Let’s wait until 1 pm GMT to see whether 0.8% is enough to make the difference between default and something else not called a default which is a default.

6. I said that if the debt swap completed, the pro-default-now group will simply start looking for more hurdles. This has already started. Also note how crucial in two key respects the ISDA decision now becomes.

I learned the following yesterday afternoon from a source close to the German Finance Ministry. In order to get the Greek debt down to 120% of GDP by 2020, the Germans insisted in private to Athens that the uptake must be at least 90% including forced CAC agreement  – to avoid straightforward lawsuits adding to the bill. Here is the exact phrase from the horse’s email:

‘Debt sustainability – 120.5 of GDP by 2020 – absolutely depends on the amount that PSI saves Greece in repayments. However unrealistic or unknowable any figure for 2020 must be, it is the starting point for the adjustment programme on which bail-out stands or falls…‘

The CAC inclusive 97.5% declared by Athens this morning must now be validated (ie audited) by the Troika. So there’s the first opportunity to unearth some worms. Some will be found: whether they’re declared or not is another matter.

Some 25 bn euros held out. If ISDA triggers CDS insurance at 1pm today, I understand the Germans at least will say, “Who’s paying for that – and it isn’t us”. So there’s another hurdle. (But let’s not forget, some of the complex – and even derived – insurance contracts may devastate parts of Wall Street: hence, a very tough call for ISDA to make: they may well bottle it).

I chose the 85% top number for participation on the basis of leaked information from sources close to ISDA’s European Determination Committee, by the way. 0.8% may be enough of a whisker for ISDA not to declare default; we’ll know in four hours time.

Last but not least, there are (I’m told by a source in Brussels) three or four ‘poison pill’ hurdles from the original Brussels Accord still being fudged (and in one case ignored) by Athens. Rest assured Herr Schauble will be onto these in due course.

The FT this morning headlined that the Greeks had ‘secured’ the 209bn euro bailout. This isn’t true. The money is in an escrow account anyway, and nothing will be handed over until the swap and the Accord have been satisfactorily fulfilled.

As for the criminality involved in Venizelos getting this result, I’d like to get all the other decks cleared – and do some validation of claims being made in my inbox – before getting onto that. But a Slogpost in some form will follow. link to original article



Comments are closed.