Greek non-default deal not running smoothly

I thought I should flag this since it is a cornerstone of the present European sovereign debt crisis strategy. Last month the EU worked out a deal whereby Greece’s private sector creditors “voluntarily” exchange the debt they are due for new debt that constitutes a write down of 50%. But now it seems that the EU is only going to get 70-80% of private creditors onboard. This deal was structured so as to prevent both credit default swap triggers and the ECB’s taking losses. And with only 70-80% participation, the deal is not going to pass.

Putting a happy spin on things, Institute of International Finance (IIF) Managing Director Charles Dallara said "we hope to find an agreement with Greece within weeks.” The IIF is an international banking group, which is coordinating private creditor negotiations. Dallara went on to say that “we could speak with direct confidence of 70% to 80%…I can easily imagine a situation in which participation is very, very high."

Translation: we are seriously worried that this deal is falling apart. I don’t want to lie outright, so I’ll just say that we can “easily imagine” it working.

Meanwhile in Greece:

Antonis Samaras appeared to harden his stance further, questioning the reforms that the coalition administration has pledged to see through.

Samaras called for “a change to the failed economic policy, a shift toward restarting and overhauling the economy.”

Sources in ND said they believed the standoff would be solved when Papademos sends a letter to EU officials with reassurances that the terms of the debt deal will be met. But EU officials also want written guarantees from Samaras and outgoing Premier George Papandreou.

Samaras’s insistence on not signing is widely regarded as posturing, chiefly to appease ND MPs who disapproved of his decision to enter a coalition with the outgoing Socialists.

Translation: Austerity isn’t working. We want to voice sympathy for a pro-growth approach for mass consumption as elections are coming but we will cave if pressure is applied.

And, at the IMF:

“It’s important that the unity government now shares its commitment to the implementation of the economic program” and the decisions agreed by European leaders last month, IMF spokesman David Hawley told reporters today. “Once broad political support” for the measures “is assured, then we can proceed with completion” of the review and the release of the tranche.

Translation: Greece won’t get on red cent from us until they fully capitulate and agree to the austerity measures we deem necessary to put it on a sustainable path.

Greek Prime Minister Lucas Papademos has three months to implement his program but he needs the 8 billion euros from the first bailout package by mid-December or Greece will default. The IMF is funding 2.2 billion of that money.

You can see that this deal is not proceeding smoothly.

Source:

• IMF Won’t Release Greek Funds Without Support – Bloomberg
• Snags remain as troika returns – ekathimerini.com

Europe eviscerated the sovereign CDS market