Latest PSI Terms Leaked; Imply Greek Redefault Within 2 Years

Tyler Durden's picture

The first details of the Greek bond deal are leaking out via Reuters, and we now learn the reason for the Greek bond sell off in recent days:

  • PRIVATE SECTOR WILL ALSO GET A GDP-LINKED ADDITIONAL PAYMENT, CAPPED AT 1 PCT OF THE OUTSTANDING AMOUNT OF NEW BONDS [If it appears that nobody gives a rat's ass about this bullet point, it's because it's true]

Which in turn explains the sell off in pre-petition Greek junior triple subordinated bonds (i.e., those held by private unconnected investors, which are subordinated to the Troika's bailout loans, to the ECB's SMP purchases, to the Public Sector bonds and to UK-law bonds in that order). With the EFSF Bill "sweetener" amounting to about 15 cents (and likely less), the fact that bondholders will receive a 3% cash coupon, a cash on cash return based on Greek bonds of 2015 trading at just 20.7 cents on the euro, indicates that investors are expecting to collect 1 cash coupon payment, and at absolute best 2, before redefault, as buying a 2015 bond now at 20.7 of par, yields a full cash return of 21 (15+3+3), thus the third coupon payment is assured not to come. And since there is a substantial upside risk premium kicker to bond buyers, in reality the investing market is saying that Greece will last at best about a year following the debt exchange (if it ever even happens) before the country redefaults.

Oh, and by the way, the fact that creditors just got even more bent over, just assures that Greece can kiss the 75% threshold for PSI acceptance goodbye. Hello CACs, and CDS trigger.

Some more just out of Reuters:

Greece will need additional relief if it is to cut its debts to 120 percent of GDP by 2020 and if it doesn't follow through on structural reforms and other measures, its debt could hit 160 percent by 2020, a debt sustainability report by the IMF, European Central Bank and European Commission shows.


The baseline scenario is that Greece will cut its debt to 129 percent of GDP in 2020 from 160 percent now, well above the targeted 120 percent, the confidential, 9-page analysis prepared for euro zone finance ministers showed.

"The results point to a need for additional debt relief from the official or private sectors to bring the debt trajectory down," said the report, dated Feb. 15 and obtained by Reuters.

The report forms the basis of discussions of euro zone ministers on the conditions under which Greece is to get further financial help from the euro zone and the IMF.

"There is a fundamental tension between the program objectives of reducing debt and improving competitiveness, in that the internal devaluation needed to restore Greece competitiveness will inevitably lead to a higher debt to GDP ratio in the near term," the report said.

"In this context, a scenario of particular concern involves internal devaluation through deeper recession (due to continued delays with structural reforms and with fiscal policy and privatisation implementation)," it said.

"This would result in a much higher debt trajectory, leaving debt as high as 160 percent of GDP in 2020. Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it," it said.

It appears nothing has been resolved. YET AGAIN

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markmotive's picture

"Redefault" in 2 years? Greece is already finished. Just ask the man in the street.


Greek poverty is skyrocketing (i.e. why Athens burns):

MillionDollarBonus_'s picture

Greece must not fall into the trap of cutting spending. This is proven to be a failed policy, as it undermines economic growth. The key is for Greece to spend even more on fiscal stimulus programs, to get the Greek people spending again. You see, money is like the life blood of the economy – it has to keep flowing or the economy dies. 

Dr Paul Krugman's picture

Agreed.  These terms are great for Europe and Greece:  Greece gets the liquidity it needs to spark its work force and Europe, who is as reliant on Greece as visa versa, will now have Greece creating growth opportunities!

resurger's picture

Hey Crookman,

fuck how you are? Can you explain how strong is the Greek financial foundation? a small straw wont break the camels back you know .


Dr Paul Krugman's picture

It's bad.  Europe -and Greece - are in a bad situation.  As they sink into the abyss should we not look to history to guide us?  Bernanke, whom I admire, is using his tools to perfection, and look at the growth in the U.S. economy!  Europe has sunk into depression.  They should take a note; use your tools!

Austerity is not constructive and we need to redevelope the economy.The ECB, and rightly so, has made a decision to create liquidity, as oppossed to letting the system freeze up.

OK, I unsderstand the fright:  spending now to create growth doesn't sound sexy.  But we have no choice.  It has worked before, thus why it will work again.  Greece needs to rebuild itself, and how could they do it in an austere period?  They couldn't.  They need help gaining traction.  Europe is willing to help, as they should be, considering they have skin in the game.

HoofHearted's picture

If you're really considering buying Greek bonds, just write them the check and stick it in the hat that gets passed around. And never again think about that money you just pissed away.

Dr Paul Krugman's picture

It's about investing in the future.  If there was no tomorrow for Greek debt, if the market crashed, then where would Europe be?  It is in Europe's best interest to listen to the technocrats and invest in their future.  It's cost benefit analysis.  And it is also opportunity cost.  It is in their benefit to invest now, for the sake of the future European Union.

TruthInSunshine's picture

Put me down for $25 worth of those 2021 and forward 3.75%.

I am putting the $25 an escrow account bearing interest at the overnight Fed funds rate.

nope-1004's picture

Then put your money where your mouth is and send some funds to the Greek populace.  I, for one, will not.  I refuse to subsidize a bloated social structure full of lazy-ass teet suckling cling ons.  We don't need more spending, we need less dependance on the state and less intervention from the state.  The failed belief by the economic community is that the gov't "creates" jobs and manages the economy.

The economy starts at the household and works up, not the reverse.  If mom and dad are sucking off of a social structure that is broke, while juniors are living in the basement "looking for work", death of the system is a foregone conclusion.



Dr Paul Krugman's picture

I do put my money where my mouth is.  I pay my taxes and will continue, hoping that everyone begins to undtand, like I do, that we are building a bridge to the future.  We may need less dependence on the state in time, but that will be reserved for when we come out of this hole.  Right now, more important than anything, is that we get out of the depression.  The science of economics can make that happen by spending now, and paying it off later.

We should provide junior with a job now so that he can help mom and pop back on their feet, then the same will be for his life when he retires.  Economies are cyclical in nature, like life.

LawsofPhysics's picture

"Economies are cyclical in nature, like life"

LOL, only when companies are allowed to fail moron and the people associated with those bad ideas and bad management are kicked to the curb.  Like "life" the good ideas, good innovation, and good managment will "live" on.

What graduate program are you part of? LOL!  What no classes to teach today?

FreeNewEnergy's picture

less dependance on the state and less intervention from the state

Ding, ding, ding. We have a winner.

Bunga Bunga's picture

Growth escape doesn't work in a resource constrained world anymore. The only way that Greece gets out of this mess is by exporting its debt to others like Germany, but this requires inversion of the trade balance on both sides. Germany would suffer. Bottom line: there is no free lunch. Except: Aliens will import Greek (PIIGS, US, ...) debt. I think you already got the point.

Dr Paul Krugman's picture

Technology will solve that, so we must invest in technology.  It is when investment stagnates that growth does too.  Thus why we must invest in our future.

LawsofPhysics's picture

"Technology will solve that, so we must invest in technology.  It is when investment stagnates that growth does too"

So long as the capital 1) has purchasing power (yes engineers and scientists can not inovate if the capital you lend them won't buy shit) and 2) the capital is available and not mal-invested in a paper ponzi between central bankers, political puppets and corrupt corporations.  Moreover, it is the return on capital and ENERGY that will determine whether or not growth can proceed.  No return, no growth.

Moreover, there is a very real cost for creating capital without adding any real value fucknut.  You of all people should know that. How about we prosecute the fucking fraud.  If we don't put the moral hazard back in the bottle it won't matter anyway.  Know the real value of your labor?  If things keep going the way they are I guess we will find out precisely what the value of everyone's labor is.  Fuck the paper-pushers, especially academic ones.

Dr Paul Krugman's picture

There is a return once the economy begins growing.  Companies hire, and there is growth!  And value is added with every new job.

LawsofPhysics's picture

Bullshit.  Not if the energy is unavailable or the energetic cost to recover and deliver the energy is more than the amount of energy released for any given source.

Sorry, the laws of physics and thermodynamics win.  Unless like every academic fucknut you are suggesting a sudden drop in the human population (making more energy available in the short term).  Inthat case, you might get your wish, and then the infinite growth in a system with finite resources scam can go on a bit longer.  You also ignore living standards and the consumption/pollution/entropy required to simply bring technology to the market   Again, troll harder.

Every new job so far has paid less in terms of real purchasing power for over 30 years.  That is you "winning".  again, troll harder, I have waste enough time.


Again, you also ignore the issue of fraud.  Fine with me, let the system collapse, I know the value of my labor.  Academics will be the first to go.

trav7777's picture

uh...the guy is not actually Paul Krugman

Bunga Bunga's picture

It doesn't explain how you get the resources required for growth.

Bunga Bunga's picture

I still do not believe that the mother of the universe is the Keynesian printer. Probably I need more brain wash.

Kayman's picture

Sheer idiocy !  It depends entirely on what that dollar is spent on.  During the Great Depression men were mainly put to work building assets that had future payoffs. 

Now, we just piss it into the wind.  Give your head a shake; your position is entirely academic.

Seer's picture

Here's the simple equation on how things work

Output = input of physical resource + energy to transform them + (given/driven by) technology (method)

Failure to properly account for physical (raw natural) resources is a glaring gape of a hole...

One can try and insert "capital" wherever one would like, but it's really only an abstract, an adjective.

LawsofPhysics's picture

precisely, the only "accounting" that matters is in terms of BTUs or calories etc.

Bunga Bunga's picture

That's a lie as it has been a lie of growth policy economics all the time. Of course, you can kick the can down the road maybe for another decade by building cars using less gas, but you will end up with more people beeing able to afford a car, more miles or both, thus more steel, highays, oil a.s.o. consumed. More efficiency just allows the Ponzi scheme going for longer, but it is still a Ponzi scheme eating the resources of the planet.

nasdaq99's picture

Dr Krookman, 

THey are at the Keynesian Endpoint otherwise they wouldn't be giving haircuts.  Broken "Rule of Law" haircuts i might add, given the unequal treatment of bondholders.  It's sickening.  Socialists like Europe and you always default on their debts.  Sometimes it just takes longer to run out of other peoples money.  Some day the socialists in DC will too.


And it won't work this time because the money is already spent.  Politicians DO NOT have the moral integrity to be trusted with Keynesian economics.  Hell, they've been stimulating the economy for 50 years and just when you need it the most, your flat assed broke.


Dr Paul Krugman's picture

There will be demand for the bonds and price will find equalibrium.  Same as always.  And the US is not broke, or else we wouldn't have made it out of the recession with a flourishing stock market.

nasdaq99's picture

Flourishing stock market?  Somebody help me out.  In terms of gold, how much is the S&P500 down since 07???????????

Keynesian Economics is grand theft and anybody practicing it should be tried for treason against the monetary system of the USA.

Read the Coinage Act of 1792.  Here's the penalty for DEBASEMENT OF THE CURRENCY:


 Penalty on de- Section 19. And be it further enacted, That

basing the coins. if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of the fine gold or fine silver therein contained, or shall be of less weight or value than the same out to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offenses, shall be deemed guilty of felony, and shall suffer death.




They got it!  You people should suffer the same fate because it is THEFT.

DosZap's picture


Kind of superceded it.................and several others changed it along the way before it really got debauched.

But Congress was granted the authority to set the values.

LawsofPhysics's picture

LOL!  take away the Fed and show me the demand.  I dare you.

Dr Paul Krugman's picture

Demand is not yet sustainable.  Once UE falls lower, then it will be.  But it is falling.

DosZap's picture


 But it is falling.

According to WHO's Stats?. NONE you can take from the BLS, or the CPI, all lies.................or intentional deception.

Give us all the real numbers.

Count the OLD ones who had jobs, but stopped looking, and count the NEW ones that drop off the roles, and gave up also.(they are not counted either)

Just like Fuel and Groceries, never figured in the CPI #'s.......................

LawsofPhysics's picture

LOL!!!!  So we can look forward to 40+ years of of "not yet sustainable" then.  LOL.  You graduate students, clearly need more to do.  Want to bring back demand? here is a suggestion prosecute the fucking fraud at all levels.  Put that in your dissertation fucknut. 

WonderDawg's picture

Growth in the US economy? That is some funny shit. You oughta take your act on the road.

Come from miles around to hear the funny man tell his jokes.

Dr Paul Krugman's picture

UE is down.  Stocks are up.  Is it perfect?  No, it will take time.  And that is why we should keep rates low for the foreseeable future.

WonderDawg's picture

UE is down? Really? Care to explain how that works with the labor participation rate also crashing? It wouldn't have anything to do with manipulation of data by the BLS, would it? Reality sucks when it kicks you in the face.

Dr Paul Krugman's picture

Right the BLS manipulates data.  OK, so how could thousands of people that crunch the numbers manipulate the data?  That is crazy!

WonderDawg's picture

It's not the thousands crunching the numbers, it's the guys who decide how to present the numbers. But, disregarding that, how would YOU explain UE going down, while at the same time, the labor participation rate also going down. If the numbers were true, they would be inversely correlated. So, DOCTOR, your explanation?

Dr Paul Krugman's picture

Baby Boomers are retiring in droves.  10,000 per day.  And yes, UE is still higher than what we want, but it has improved, and is still improving, thanks to economic and fiscal policy.

WonderDawg's picture

Arguing with a sociopathic liar is pointless, so I'll just say, bullshit.

Seer's picture

You're chasing your own tail.  This is satire!  Really, think that Krugman would turn 190 because of anything any of us here would say?

Sigh, but I really don't need to read what this person writes because it's already written (and spoken) everywhere as it is...  the dominant culture has a death wish.

satan2liberals's picture

"Baby Boomers are retiring in droves.  10,000 per day. "


Yeah , because they lost their jobs.

LawsofPhysics's picture

There is a very real cost for creating capital without adding any real value, if we are in a recovery, then rates should be going up.  Troll harder.

nasdaq99's picture

Keynesian Economics got us here and instead of fixing what is wrong--the FED, they grab more power to fix the mess they made.  Here's Mish's Fed Uncertainty Principle, Corollary Number two:

Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.


This now applies to the EU and every other Central Bank controlled economy.

You make a huge mess then print more, demand more power and proceed to make a bad problem worse.  Greece could be RECOVERING JUST LIKE ICELAND RIGHT NOW had they done the right thing two years ago.

resurger's picture

How exactly did the growth happen sir? Let me walk you through the crises since 2008-2012:



Angelo Mozilo giving sub-crime mortgage to unqualified Citizens

2- The Zionist Banks package the mortgages into CDO's

3- The Bubble pops, Lehman goes bankrupt and Dick Fuld is a collateral damage.

4- The housing market is fucked

5- The FED announces SCAP (Supervisory Capital Assessment Program)

6- The TBTF get's shit loads of fiat ponzi free money and the interest rates goes to zero due to ZIRP

7- The FED announces Qeasy 1 and then Qeasy 2

8- The FED forces the TBTF "if TBTF hurts you try this (systemically important financial institutions) to buy their bond's through ESF on the downgrade and the Indian CEO is gone.

9- Q with a little Twist

8- The FED promises to keep interest rates near zero till 2014

"spending now to create growth doesn't sound sexy.  But we have no choice"

There are no more tools , just admit that the Economy is fucked, the only way you could have solved the problem is by letting the people get near Zero loans which you did not give!

i dont even want to waste my time on you! You can't even answer are you smarter than a fifth grader first question

you are joke on ZH!


Dr Paul Krugman's picture

It has worked.  What is your point?

resurger's picture

of course it did work, the 0.0000000000000000000000000000000000000000001% got richer.


Dr Paul Krugman's picture

And UE has gone down.  And growth has increased.  Is the economy back on its feet?  Not yet.  Which is why the policy must continue.

resurger's picture

The Economy back on it feet? Please EXPLAIN, are you telling me that the USD is stronger because people has found a safe Haven in the USD like China and Russia

What about Gold and Silver, do you believe in Gold and Silver? Becuase if you do i will go sell them tomorrow