Greek PM Lucas Papademos’ meeting with Charles Dallara, managing director of Institute of International Finance (IIF) concluded on Wednesday night in Athens. Greek media report, the two men discussed the restructuring of the debt and the participation of private investors. I am sure, the two men spoke a common language and immediately understood each other. More details have not been revealed so far. But if we want to believe the British press, things do not look good. Then private investors may agree to accept a 50% ‘haircut’ on the value of the Greek bonds they hold, but they demand a much higher interest rate. Something like 8% a year. A predatory interest rate in a loan-shark style. That would be a Haircut with long pigtails, I guess. Unless, these leakages to the press are just for the shake of bargaining….
Nice story from the Guardian…
Greece’s bond haircut won’t make things easier in the short term
Investors may agree to accept 50% less than they are owed – but at a much higher interest rate
Will the Greek government in reality be any better off after the “haircut” being negotiated on its debt?
Negotiators from the Institute of International Finance, a consortium of Greek bondholders, have agreed to swap their current bonds for new ones worth 50% of their current value, though the final figure has still to be thrashed out. In return, they are understood to be demanding that the future interest rate on the new bonds will be around 8% a year. That means bondholders will receive almost the same amount of interest they are currently getting.
In other words, the cost to the Greek government of servicing its huge debt may not fall by much, if at all. The debt-to-GDP ratio will fall, and when the bonds mature, there is less debt to repay, but the portion of government spending eaten up by paying the interest on the bonds will stay much the same.
It’s like changing your mortgage from £200,000 on 5% a year to £100,000 on 10% a year. You owe less, but the monthly amount coming out of your pay to service the loan stays the same, so you’re not immediately better off.
If you want to understand the big picture from a speculators point of view and if you want to understand the entire picture of what has been happening with this financial crisis since 2006 and what will happen, please watch this video of an interview done by the BBC on 15. Nov.
Its the best interview I have seen on this crisis since it began and it will make you understand the situation and the coming events better:
http://www.youtube.com/watch?v=VBWiQlS5Qg0
I dont like the guy but he does have make some good points!
I think that while Greece has a chance, she should still refuse to accept a haircut, particularly this fake haircut which pretends to cut Greece’s debt in half and which will probable not shave off more than 20% (if even) of Greece’s total debt.
http://klauskastner.blogspot.com/2011/10/greeks-dont-accept-haircut.html