Le Figaro Reports French Banks Propose "Voluntary" 30 Year Debt Rollover, However With DOAing 30%-50% Implied Haircut

Tyler Durden's picture

The latest episode in the "we'll make it up as we go along" rescue of the Euro comes from France where as Le Figaro reports, a working group of French banks led by BNP Paribas has proposed, and been agreed to by the French Treasury, that maturing debt would be rolled over into a a 30 year maturity piece, accounting for 50% of the total existing debt, and another 20% would go into a "zero coupon" fund focused on high quality stocks. Also according to Le Figaro, borrowings under the proposed scheme would pay an interest equivalent to what Greek "public" interest is plus a variable interest rate "likely to be linked to an economic Greek indicator such as GDP" (which being negative for years will likely means lower interest than prevailing).

Of course the problem with this proposal for anyone who can do simple math, is that the implied haircut for the Greek Treasury would be between 30% and 50%, depending on how one accounts for the treatment of the sinking stock market ponzi fund. But certainly at least 30% of the rolling over debt would not come back to the issuing authority. And since French banks are unaware of simple rating agency methodology, any debt exchange, whether called "voluntary" or otherwise, which involves a notional haircut of any variety is an immediate event of default. As a reminder, avoiding a rating agency EOD, far more than an ISDA CDS trigger determination, is what this whole charade is all about. Since an EOD would mean Greek debt becomes ineligible in any capacity for ECB collateralization, and since there are likely hundreds of billions in Greek sovereign debt pledged to the ECB either directly, or indirectly, through Greek banks, this funding avenue closure would commence the waterfall that triggers the liquidity cascade that culminate with every single European money market fund breaking the buck as has been discussed previously.

As such, this latest proposal is also Dead On Arrival.

Elsewhere, Germany was making more noise, claiming the "voluntary" bailout would be agreed upon by everyone "or else" and that Greece would be doing the worst thing possible if it were to not accept the generous terms of the second Greek bailout which is now bigger than the first one.

From Reuters:

Greece accepted a package of 110 billion euros of EU/IMF loans in May 2010 but now needs a second bailout of a similar size to meet its financial obligations until the end of 2014, when it hopes to return to capital markets for funding.

Euro zone finance ministers have said they will define by early July "the main parameters" of a new international bailout plan.

German Finance Minister Wolfgang Schaeuble told Bild am Sonntag he expected private sector creditors to participate willingly in a second bailout package, underlining also that Greece would not receive the next aid tranche if the government's austerity plans were vetoed.

The Greek parliament is due to vote on Wednesday and Thursday on measures that include 6.5 billion euros of extra austerity steps for this year and savings of 22 billion euros for 2012-2015 to cut deficits and keep qualifying for EU/IMF aid.

What Schaeuble forgot to add is that the only real loser in this deal would be Germany, as a Greek "No" vote would beging the process of EUR dissolution, also meaning the DEM would make its long overdue comeback, which in turn would force Germany exports to surge in price courtesy of a revaluation of the German currency, somewhere 100% higher than where its implied value is now, and in the process destroy the German economy, which one may say employs quite a bit of the same mercantilist policies as used by that other exporter, China.