Τρίτη, Οκτωβρίου 25, 2011

The Greek Haircut Could Reach 100%


We’re all aware by now that the only way that Greece is going to get out of its financial woes is to default on its debt. The big remaining question is, how much of a haircut (ie, loss) are the lenders going to have to take? What’s starting to get a bit worrying is that for private investors, the haircut could reach 100%:
For what the report doesn’t seem to cover is — unsurpisingly — the role of official creditors. As UBS economists noted earlier this week, even 50 or 60 per cent haircuts won’t be enough. A 110-120 per cent debt to GDP by 2020 (as suggested in the scenario) remains highly dangerous.
Indeed, there appears to be concern, to put it lightly, at the ECB about the scenarios used in the report. Scenarios that get a little close to home, perhaps. Here’s an interesting footnote to the last quoted paragraph:
The ECB does not agree with the inclusion of these illustrative scenarios concerning a deeper PSI in this report.
Because, as FT Alphaville’s Joseph Cotterill adds in an email to us, “either the official creditors take haircuts too (ha!) OR they’ll be discussing 90-100 per cent private haircuts soon enough.”
To explain this a little. Greece’s debt has to be cut to something that is repayable and a reasonable estimate of the top end of what that is is around 100%, perhaps a little more, of GDP. Given that Greek debt, without a haircut, is likely to peak somewhere over 180% of GDP, obviously there needs to be a haircut.
From those figures alone, 50% should do it and that is around and about where Greek debt is trading at the moment. However, we do have a problem here.
Much of the outstanding Greek debt is now held by official institutions. The ECB, possibly various national governments themselves and maybe even the IMF. And what is likely to happen in any restructuring of the Greek debt is that the debt held by the official institutions does not suffer a haircut. Which means that that part held privately (which includes banks and so on as well as individuals) will need to have a much larger haircut in order to reduce the debt burden sufficiently.
In fact, given that the largest holders of Greek debt, those institutions, are not going to take a loss, the loss to private investors might have to be 100% in order to reduce the debt burden
http://www.forbes.com/sites/timworstall/2011/10/22/the-greek-haircut-could-reach-100/

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