On Wednesday, the private-creditor investor committee for Greece – the group of banks negotiating the voluntary exchange of Greek bonds to accept a 53.5% haircut – announced more firm commitments to the exchange from holders now accounting for 39.3% of the €216 billion of bonds eligible.
Among those adding their names to the 12 steering committee members who announced their commitment on Tuesday are Ageas, Banque Postale, BBVA, Crédit Agricole, Crédit Foncier, DekaBank, Dexia, Emporiki Bank of Greece, Generali, Groupama, HSBC, KBC, Marfin Popular Bank, MetLife, Piraeus Bank, Royal Bank of Scotland, Société Générale and UniCredit.
The release of these names looks like the second leg of a pincer movement to put pressure on those holders still undecided, after the threat from the Greek Public Debt Management Agency on Tuesday that “Greece’s economic programme does not contemplate the availability of funds to make payments to private-sector creditors that decline to participate in PSI [private-sector involvement]”, and that “if PSI is not successfully completed, the official sector will not finance Greece’s economic programme and Greece will need to restructure its debt ... on different terms”.
What could those different terms be? Could it end in a haircut much closer to 100% than 53%?
A disorderly Greek default still has the potential to destroy at a stroke the fragile equilibrium restored to financial markets by the European Central Bank’s (ECB) extraordinary injection of €500 billion of new liquidity through the long-term refinancing operations. If this was an initial public offering – rather than the biggest sovereign debt restructuring in history – the bookrunners announcing a deal 40% covered with 32 hours until pricing would consider pulling it.
Even if the deal is completed, economists worry that the PSI plan over which markets are now agonizing can’t succeed.
”The PSI barely makes a dent in Greece’s debts,” Jamie Dannhauser, a senior economist at Lombard Street Research, pointed out to a seminar of the firm’s clients on Wednesday. “The troika’s plans to get debt-to-GDP down to 120% by the end of the decade are contingent on successful implementation of all the structural reforms, including privatization, that are supposed to help Greece start growing at around 2.5% from 2014 onward.
“But where on earth is the evidence that structural reforms can have such an effect in just a few quarters? The full-year contraction last year was around 6.8% and the estimate for this year is it could be 8% or even higher.”
He suggests: “The troika’s numbers don’t add up and Greece will be back with the begging bowl even sooner than is widely expected.”
Greek elections, due in April, present a looming event risk to market participants whose recent complacency thanks to ECB generosity might already be starting to wear off.
Spanish prime minister Mariano Rajoy’s decision to renege on a fiscal consolidation plan only just agreed with the European Commission sets an interesting precedent so soon after the signing of the austerity pact. Charles Dumas of Lombard Street Research calls it the eurozone’s suicide pact.
