Greece: “good luck for the next restructuring…”

As the euro crisis rumbles on, confirmation, if any were needed, that Greece is, indeed, heading back to the polls.  You can follow further developments on the Guardian’s live-blog

Meanwhile, having cajoled the vast majority of their private sector creditors into taking part in a bond swap deal in March, the Greek government [who? – Ed] outgoing prime minister technocrat-in-chief, Lucas Papademos, has opted to pay up, on a May 15 due bond, to those who held out at the time.  From the Irish Times hosted Reuters report

In an about-face, Greece opted to pay holders of €430 million of a May 15th bond, despite having told those who took its bond swap offer in March that they would otherwise get nothing, government officials said.

The decision averts litigation by the bondholders, and will infuriate the 96.9  per cent of creditors, mainly European banks, who agreed to take the deal.

“Greece’s strategy has been to openly say that it won’t pay holdouts, possibly in the hope at least some of them would go away,” said Steven Friel at legal firm Brown Rudnick, who advises creditors holding other Greek bonds that were not exchanged under the swap.

“This decision sets a commercial, if not a legal, precedent that they are willing to meet their obligations to pay bondholders in full for the other international law bonds that will mature in coming years,” he said.

A source close to private creditors involved in the swap, who declined to be identified, called it “scandalous” and wished Greece “good luck for the next restructuring”.

Indeed.

Adds  From the Guardian live blog

James Campbell, partner at international law firm Pillsbury, argues that Greece was in a terribly difficult position. Had it not paid the €435m, it would have defaulted. But by paying up today, it faces the risk of legal action from bond-holders who did take a haircut (losing 70% of the value of their bonds).

“That Greece has paid may not be the end of the affair. We can see significant protests from those bondholders who agreed to previous debt restructuring on the basis that Greece said that there was no money available to do anything else. Lawsuits may follow if previous “co-operative” bondholders view this as a misrepresentation.

“Furthermore, Greece’s decision to pay will be seen as a victory for the hold-out bondholders which will embolden them. In March the press widely reported that funds were buying up bonds issued by Hellenic Railways and guaranteed by the state. Like the bonds repaid today, those bonds are governed by English law and the proposed restructuring of them was not successful. These bonds are up next for repayment and we will be monitoring developments with interest. Greece may only have deferred the pain for another day.”

Just what Greece needs right now, a legal battle with international investors….

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  • sdelaneys
  • Pete Baker

    Adds From the Guardian live blog

    James Campbell, partner at international law firm Pillsbury, argues that Greece was in a terribly difficult position. Had it not paid the €435m, it would have defaulted. But by paying up today, it faces the risk of legal action from bond-holders who did take a haircut (losing 70% of the value of their bonds).

    “That Greece has paid may not be the end of the affair. We can see significant protests from those bondholders who agreed to previous debt restructuring on the basis that Greece said that there was no money available to do anything else. Lawsuits may follow if previous “co-operative” bondholders view this as a misrepresentation.

    “Furthermore, Greece’s decision to pay will be seen as a victory for the hold-out bondholders which will embolden them. In March the press widely reported that funds were buying up bonds issued by Hellenic Railways and guaranteed by the state. Like the bonds repaid today, those bonds are governed by English law and the proposed restructuring of them was not successful. These bonds are up next for repayment and we will be monitoring developments with interest. Greece may only have deferred the pain for another day.”

    Just what Greece needs right now, a legal battle with international investors….

  • Zig70

    Maybe a sign that the Greek administration have given up and they are just blowing the ECB’s money before defaulting on it anyway. Either that or the path of least resistance, a sympton of the politics that helped get Greece into this position in the first place. The people of Greece would suffer greatly in a default outside the Euro and I wish them well. Do the Eurocrats care about the human element to the Greek crisis? Doesn’t look like it to me from the hard positioning.

  • Old Mortality

    Zig
    I don’t see why the Eurocrats should care. The Greeks should be looking at themselves wondering why they believed that a generous supply of public funded sinecures could be financed by borrowing indefinitely. They might also ask why none of their politicans had the backbone to tell them otherwise. They’re not starving but we must all respond generously if and when there’s an appeal from aid agencies to supply them with food.

  • Zig70

    Ah, screw them, the feckless Greeks. Nice. Sure they don’t like paying taxes, nor do I. Lots here think public sector workers should get well paid have nice big pensions and the more the merrier. (I don’t) I would contest the EU were feckless allowing Greece in, the global financial sector was feckless for letting everyone borrow to their hearts content and the EU was again feckless in managing the EU debt crisis, managing to grow the sovereign EU debt and chiiping in with a half assed debt reduction for Greece. The Germans will pay either way as they stupidly lent Greece the money. Feckless Germans forgot due diligence. Business/markets need to see a path to plan on, it isn’t there yet.

  • wee buns

    The Greek left’s refusal to negotiate with potential coalition partners, arguing against the terms of the EU-IMF austerity regime (lest it be forgotten in stark contrast to ‘Frankfurt’s way or Labor’s way’) – well at least Tsipras has the gonads to honor his election pledge to the Greek people.

    The eurozone has bred this chaos with its own hand by half century of union by stealth.
    Now let it reap the consequences of having decimated the legitimacy of the major parties in Greece.

  • Old Mortality

    Wee buns
    “Tsipras has the gonads to honor his election pledge to the Greek people”
    There’s not much ‘honor’ or even ‘honour’ in telling people what they want to hear — that there is an alternative to painful adjustment. He must be terrified of actually taking power and having to tell them that there isn’t really.

  • wee buns

    OM

    Of course there is an alternative to the extremity of ‘painful adjustment’ and Tsipras knows it – much as I hate to state the obvious – ‘cos he got democratic backing to demand it.

    The Syriza party has risen from getting 5% of the vote to 17% and is now polling in the mid twenties. A reasonable chance therefore that next election can bring a government that rejects the austerity measures contained in the second memorandum.

    Telling people what they want to hear – let’s leave that to lily gonaded Irish Labour party.

    By contrast Tsipras is walking the walk.
    If he forms government that rejects the memorandum, while refusing unilaterally to leave the euro – well then the EU has a big problem, not Greece.

    ‘EU: Good luck for the big fat haircut’