There have been some choice quotes flying around as the Greek government neared the 8pm deadline for securing sufficient private sector creditor involvement in their bond swap deal [and convincing Frau Bundeskanzlerin - Ed]. Like this quote from the Guardian live-blog at 6.59pm
“if it closes at more than 90% its a triumph,” one well-briefed government official said. “If it’s above 75% its relatively good, if it’s lower than that we’re fucked,” he added saying the effects on market psychology would be terrible.
Greek officials say they expect to be kept up most of the night counting participation rates in the public bond swap offer. By 8am local time tomorrow (6am GMT) the finance ministry will be in a position to announce “preliminary results” as agreed with the Euro Group of finance ministers and Institute of International Finance [IIF] representing private holders of Greek government debt.
“The percentage [of participation] will be announced but we are not going to give any details about categories of the bond holders involved,” one official said confirming that the atmosphere is “very positive”, adding:
“Whoever gives percentage rates now is naive. There are only four or five people on the planet who know the exact percentage and those who claim to know are just guessing.”
And then there are the more technical decisions to be made
“The ministers will decide whether the collective action clauses [CACS] should be activated or not,” the insider said. “If it is higher than 90% we will consider it near universal participation [a voluntary swap] and there will be no need for CACS. The big question is what happens if it is between 75% and 90%. The call could last anywhere between one and five hours.”
The BBC’s Robert Peston [and still everyone's hero! - Ed] is praying for a Greek default
However, tomorrow the Greek government may well announce that it is coercing those who don’t wish to swap old bonds for new into doing so, by activating “collective action clauses” that were retrospectively inserted into the bonds’ terms and conditions.
Were this to happen, just under $69bn gross (yes dollars), and $3.2bn of net CDS contracts written against Greek government bonds would be activated.
Which is enough to cause comfort or pain to individual banks and financial institutions, depending on whether they are buyers or sellers of the insurance, but not enough to bring the financial system to its knees.
By contrast, if the Greek CDSs were not triggered, Houston there may be a problem.
Dario Perkins, analyst at Lombard Street Research, said the expected agreement would buy Greece “some additional time, maybe a few months, but it is unlikely to change the end result. Ultimately – as we may have mentioned once or twice before – we expect Greece to default ‘properly’ and leave the euro area.”
And the Guardian’s Nils Pratley adds that - “Dario Perkins of Lombard Street Research makes a fair point when he says the crisis ‘is starting to feel like the fourth or fifth instalment of a horror movie series that is rapidly running out of ideas and credibility. It’s Halloween 5 or Jaws IV.’””
But what, actually, will have changed? In terms of the big picture, not much. The Greek government is still being told to make cuts in spending that will undermine economic growth for years. The ambition of reducing Greece’s debt-to-GDP ratio to 120% by 2020 will still seem incredible. A third bailout or a bigger default and Greek exit from the euro will still be on the cards.
Lombard Street predicts the latter and asks what would happen next. Will investors attack Portugal? Or Italy again? Those possible plotlines still haven’t disappeared.
As Perkins puts it, by the fifth instalment producers have to ramp up the violence and special effects.