And so the one thing that was supposed to be set (if only briefly) in stone, the terms of the Greek creditor haircut, has now fallen apart. From Reuters: "The Greeks are demanding that the new bonds' Net Present Value, -- a measure of the current worth of their future cash flows -- be cut to 25 percent, a second person said, a far harsher measure than a number in the high 40s the banks have in mind. Banks represented by the IIF agreed to write off the notional value of their Greek bondholdings by 50 percent last month, in a deal to reduce Greece's debt ratio to 120 percent of its Gross Domestic Product by 2020." And confirming that the IIF has now lost control of the situation, "the country has now started talking to its creditor banks directly, the sources said." And because the NPV is only one component in determining what the final haircut really is, this means that the haircut just got higher or the actual coupon due to creditors will be slashed, a move which will see Sarkozy balking at this overture in which Greece once again sense weakness out of Europe. We can't wait to hear what France says to this latest escalation by Greece, which once again has destroyed the precarious European balance.
More from Reuters:
Banks represented by the IIF agreed to write off the notional value of their Greek bondholdings by 50 percent last month, in a deal to reduce Greece's debt ratio to 120 percent of its Gross Domestic Product by 2020.
There are 206 billion euros of Greek government bonds in private sector hands -- banks, institutional investors and hedge funds -- and a 50 percent reduction would reduce Greece's debt burden by some 100 billion euros.
But key details determining the cost for bondholders, such as the coupon and the discount rate, are still open.
"The battle lines are being drawn," the second person said.
And since there will be debates about this being voluntary, it appears that Greece now has considered a squeeze out option which "forces" everyone to agree to the same terms.
It is increasingly likely that Greece will force bondholders who do not voluntarily take part in the bond swap to accept the same terms and conditions, something that is possible because most of the bonds are written under Greek law.
"Ask yourself the question. After launching this, after having told the private sector involvement is essential, are (the governments) going to be prepared to lend money (to Greece) to pay hold-outs?," the first source said.
European Union leaders from the outset had stressed the voluntary nature of the deal, in order to prevent a disorderly default of the country, which they feared could have a calamitous impact on financial markets.
Athens could squeeze out bondholders by changing the law so that any untendered bonds would have the same terms as the new ones, if a majority of debtholders -- for instance 75 percent -- voted in favour of the exchange.
The European Central Bank (ECB) and the French government, who had originally been fiercely opposed to any form of forced squeeze-out, are not so against it now, even if this could trigger a pay-out of Credit Default Swaps (CDS).
One market participant said that the take-up might well be high even if the conditions were unfavourable.
"There aren't many alternatives. If I were an investor, I'd think it was about time to take my loss. I don't see much more money coming in out of Europe, so that's where it stops," this person said, asking not to be named.
"Every time (the plan) fails, something else will need to happen. And it's going to be a harsher step every time."
And so Greece has just called Europe's, America's and of course ISDA bluff all over again.
Back to square one.