Greek Finance Minister Evangelos Venizelos confound us yesterday and today the term ‘selective default’ is on everyone’s lips. Journalists and economists of the country have poured a lot of ink and have consumed enough gray matter to explain the term and its impact on our daily lives. However since the conditions of ‘selective default’ are not known yet, or have not been set, many things are currently open with the main question being: How long will this SD will last.
“SD – Selective default: The obligor has failed to service one or more financial obligations but CI (Capital Intelligence) believes that the default will be restricted in scope and that the obligor will continue honouring other financial commitments in a timely manner.” (bankersalmanac.com)
I understand that so far
If they opt for a rollover labelled as a selective default then that will not be bad news or result in any losses for NBG. This selective default will not be a selective default according to the usual definition. They are not proposing that bondholders suffer any actual loss on the existing bonds. They are not even likely to extend existing bonds but rather to rollover into new bonds on maturity. How can that be a blow to NBG? I’ll answer it for you: It cannot be a blow to NBG particularly if it is a rollover and it is virtually certain to be a rollover. The collateral issue is easily solved. The real issue is whether there will be a guarantee on the new bonds. I have been predicting that there will be a guarantee but we will find out soon.
The lack of a quick decision is annoying as is the lack of clarity