Now we’re in for it.
Reports are filtering in that the PSI (read: the private bondholders who are agreeing to take a haircut) is a miserable 20% or thereabouts of the outstanding debt.
That’s nowhere near enough to invoke the “collective action clauses” (read: force everyone else to eat it) as it appears the private creditors have bought CDS and prefer to take their chances on being able to collect on that “insurance.”
We may be within days of finding out if the CDS can in fact be paid.
My guess is that the answer is “Yes”, since the amount involved here is relatively small. However, that’s not the problem.
Let’s assume that Greece fails to get their “PSI” and thus hard-defaults. The correct thing for them to do in this instance is to default all externally-held bonds at minimum (and maybe all of them, external or not.)
Why should Portugal, Ireland or Italy pay if Greece can erect the middle finger?
Oh yeah, we didn’t think about that, did we?
Actually, I suspect Germany and the ECB did think about exactly that, which is why the “Troika” has been trying like hell to avoid this outcome. But it appears that there is no reason for the Greeks to avoid it at this point, nor any reason for the creditors to do so.
I have held since the beginning of this mess that Greece was going to default — it was inevitable. I will add that it is inevitable that if The United States does not immediately — not in five years, not in ten, not in fifteen, but now — balance its budget and cut the deficit spending to zero we will inevitably default as well.
Governments can and will play games with obfuscation and outright lies for a very long time. But eventually, irrespective of those lies, the mathematical facts come to the fore and make resolution impossible. The only avoidance of this outcome is to take the necessary steps before you get that far into the soup while it is still possible to make difficult-but-not-fatal choices.
We are quickly running out of time in America and Europe appears to be the trigger that will force our hand. This does not surprise me; the only surprise is that we’ve managed to get away with our obfuscation and lies for as long as we have.