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Greek Debt Deal – Bondholders take 50% Loss- Who Wins and Loses

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According to reports coming from Europe where the summit of major European leaders took place to resolve the growing debt crisis,a deal has been reached on Greek debt.The Euro 350 billion debt which dwarfs the size of the negatively growing Greek economy has been a major source of instability in the last 2 years.The private holders of the Greek government bonds have agreed to take a  50% writeoff on their holdings.This means that if they hold Euro 100 of bonds they have become Euro 50 now as the rest has been written off as bad debt.Not that it was not apparent as Greek CDS and Greek bonds were touching all times lows in the secondary market.In fact the only buyers of Greece bonds were the European Central Bank and the Greek banks.The capital markets had been going up in the last month in the hope of some sort of resolution.The deal does not look like a win win as there will be some big losers in this deal (though they were already losing for some time).Nicolas Sarkozy announced the deal which would be voluntary in nature so that the CDS would not be invoked.Here are the winners and losers from this deal


1) Greek CDS Holders – They would be one of the biggest losing part as ISDA will not invoke that this is a credit event in which the Greek bonds have defaulted despite the 50% haircut

2) Greek Citizens – They would have been better off if a more sustainable path had been paved since the estimates still call for Greece to have 120% debt to GDP ratio by 2020.This means that they will have to live in a generation of austerity and poverty

3) Greece Pension Funds and French Banks – The French Banks like BNP Paribas,Credit Agricole have the biggest holdings of the debt.So also Pension Funds in Greece and other places which will be suddenly seeing a big hole in their assets column


1) Euro – The currency has managed to survive this phase of the crisis and has managed to surge at least till now.

2) Italy,Spain and Portugal – The contagion to the bonds of these countries will be contained since Greece has not done a messy default.The yeilds on the bonds of these countries might go down at least temporarily


Greek bondholders to take 50% haircut – Marketwatch

French President Nicolas Sarkozy said at a press conference in Brussels that the 50% haircut will be a voluntary agreement.An involuntary writedown could have potentially constituted a “credit event” that would have required the payout on billions of euros in credit default swaps, instruments used to insure debt against non-payment.

Thursday’s deal means that Greece’s debt burden will fall by around €100 billion ($140 billion). Media reports earlier this week had put a possible haircut on Greek government bonds at between 40% and 60%.Sarkozy also announced that the European Financial Stability Facility will see an increase in firepower by four- or five-fold.

An expanded bailout fund is seen as crucial in ensuring that the debt crisis doesn’t engulf Spain and Italy.


Abhishek Shah

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