Fancy word for default. Spotted by John Dizard in the FT, and neatly summarised by Yves Smith on Naked Capitalism below. Greece is imposing (at least) a 19% haircut on holders of state hospital bonds.
This hasn’t yet gotten the attention it merits because it’s bonds issued by particular government bodies (in this case, the Greek state hospital system) and the investors aren’t big Eurobanks but suppliers. Old outstanding coupon bonds are being replaced with zero coupon bonds. The relevant ministries contend this amounts to a 19% haircut; Dizard thinks the discount rate is too low (hence the proper discount is even greater) and an expert who deals in particularly exotic debt thinks this paper will trade down a lot further.
A Greek default may well render the in-progress European bank stress tests obselete, before they are completed.
Oh, and the haircut assumed by the ECB on sovereign debt in its stress tests? A mere 3%.