Handelsblatt Warns Insufficient PSI Participation Will Lead To Greek Default

Tyler Durden's picture

A few weeks ago, some of the more naive media elements reported that Greece has "all the cards" in its negotiations with private creditors, a topic we had the pleasure of deconstructing in its entirety to its constituent flaws? Well, a day ahead of the February 15 Eurozone meeting at which Greece's fate is finally supposed to be settled, things appear to be quite amiss. As a reminder, a critical part of the Greek debt deal is the private sector's agreement to roll over existing holdings into new bonds, which as we learned may now see the 15 cent per bond sweetener into new EFSF debt reduced. According to the Handelsblatt, that is now off the table. Dow Jones summarizes: "Some central bankers expect that Greece will fail to enlist enough private investors in a voluntary debt restructuring to avoid a technical default, a German newspaper reported Tuesday.  Greece is likely to make its case for a voluntary debt swap after a meeting of euro group finance ministers Wednesday, the Handelsblatt newspaper says. The Greek government is seeking to lower its burden by EUR100 billion. Handelsblatt cites unnamed central bank sources as saying the country will fail to achieve that goal, leaving the government little choice but to make the write-down mandatory for investors holding out. Requiring investors to take a loss would prompt credit rating agencies to declare a debt default for Greece, an event with unforeseeable consequences for financial markets. The report doesn't specify whether its sources are with the European Central Bank or with the German Bundesbank. Neither bank would comment early Tuesday." Which of course is not news: after all even the rating agencies have long warned a Greek default is now inevitable, and a CDS trigger will follow. The only thing that there is massive confusion over is whether and how this event will impact everyone else, and whether it will lead to an explusion of Greece from the Eurozone. Optimism is that it is all priced in. So was Lehman.

A Google translated version of the news from the Handelsblatt is as follows:

The bailout of Greece got into a farce. It is expected that achieved after months of struggle, the agreement between private creditors and the Greek government announced a "voluntary" waiver while on Wednesday after the meeting of the Euro Group. But it seems clear now that the debt section of approximately 70 percent will not be sustainable. Federal Reserve districts do not expect more that enough owners of Greek government bonds, will join the voluntary agreement for a waiver. With too little participation but the targeted debt relief for Greece of € 100 billion would not be achieved.


So go Fed circles believe that Greece will change the loan terms by law. Such a waiver agreement would be binding for all bondholders, when 50 percent of bondholders to vote for. This would also include small investors and hedge funds.


Both the policy and the European Central Bank (ECB) had insisted that the average debt must be "voluntary" to prevent an official Greek insolvency. For such a payment default - also called credit event - would mean that the Kreditversichungen (credit default swaps) on government bonds, with the investors had secured, would be due. This in turn - so feared the crisis manager - would trigger a chain reaction in financial markets.


It is not clear yet whether the ECB would join in this week with their holdings of Greek government bonds, a voluntary waiver. From its bond purchase program, the ECB will hold 40 to 50 billion euros of Greek government bonds.


If there is a compulsory participation of all bondholders is still unclear whether the ECB can then get a special status. Institutional investors such as hedge funds are likely to sue in such a case they suffer.

As a reminder, earlier today we learned that the ECB has formally rejected please to take losses on its debt, refuting yesterday's latest Dow Jones rumor to the contrary, and will merely forego losses on its Greek bond holdings. At this point we should probably offer another award for an explanation of how any entity could have a "profit" on a security it bought in the 70 and 80s, and which is now trading in the 20s, or at all time lows. But we are saving our cash for the BLS moles...

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hedgeless_horseman's picture



Requiring investors to take a loss would prompt credit rating agencies to declare a debt default for Greece, an event with unforeseeable consequences for financial markets.

Anything but that! 

trav7777's picture

Nobody risking their OWN money would be stupid enough to "invest" in Greece.

Drachma went from 30:1 to 400:1 against USD since we pulled the gold peg.  I still cannot fathom how anyone could have even pretended to BELIEVE Greece's budget numbers.

A Man without Qualities's picture

It's always been a game of how far can we push it without people calling bullshit.  But this applies globally.  

CPL's picture

I don't remember anyone getting bailed out for Tyco, Worldcom, BreX, Nortel, etc.  I understand we all have the equal opportunity to do the necessary due diligence prior to purchasing equities and bonds prior to commitments.

If the "investors" are too stupid to pound on the sell button when required, maybe they should be working in another line of work somewhere.  This is nobody's loss but the fools that bought into the rose tinted offering of garbage debt.


I would say they should do better next time, but there simply won't be a next time.  I do admire the tenacity of the "investors" though; for a lack of basic math, poor decision making, mistiming, poorly constructed arguments and propaganda.


I often wonder when they'll say "uncle", probably five minutes before their turn at the gallows.

_ConanTheLibertarian_'s picture

The goddamned investors should bleed for their stupidy, not the taxpayers.

The Big Ching-aso's picture



At this junkture, a private investor lending them more money deserves their privates to be violated.

Manthong's picture

Arbitrary “bonds”.. coerced “agreements”.. “sweeteners” for 70 per cent losses.. retroactive conditions..

Modern finance sucks.

I prefer the days when the bad guys wore masks and just pulled a gun and stole the money.

The Big Ching-aso's picture



Ya, at least there was no need for a 'paper trail' either.

persu's picture

Zh, please decide. Somethis you say, there is only tiny net notional of cds and debt more or less written off, sometimes default has unforseen consequences. So which one is it? Non event or hurricane.
It might at so pont be a good idea to buy Greek bonds, if public sector is forced to join? Higher recovery?
What do you reckon?

Ancona's picture

Jeez Louise......just 'friggin default already.

kito's picture

whats the big deal about the ecb taking a loss? they can just print to make up for it.............................lose a billion, print a billion, lose a billion, print a billion, lose a billion, print a billion...............................

Vampyroteuthis infernalis's picture

True, they can turn on the money presses. What most refuse to accept is that the printing is only inflationary in the near term and will lead to a massive deflationary black hole in the future when everyone defaults.

Doña K's picture

The Germans invented printing think Gutenberg & Weimar. The'll do it again

trav7777's picture

nein.  Default is not deflationary.  It's the opposite.

Attempted servicing of debt until you've sold everything off is deflationary from a monetary sense.  However, liquidity issues and counterparty BS along with CDSs make this type of situation very brief.  It's like the price of gold would hit $100/oz but nobody would have any cash to buy it with. 

This isn't too hard to grasp here...if you look at the basic unit of fiat account, a sovereign note, you find that when that sovereign, that physical agglomeration, against which a note is a claim against ends up defaulting that the claims get very steeply discounted.

As our money is debt, this means decreasing worthfulness of paper.

Dr. Engali's picture

It is just the opposite. There will be a brief moment of deflation when the chaos starts but that will be short lived because money velocity will speed up as dollars are dumped and the buying power decreases.

Texas Ginslinger's picture


This is an odd comment;  "Some central bankers expect that Greece will fail to enlist enough private investors in a voluntary debt restructuring to avoid a technical default, a German newspaper reported Tuesday."

'Voluntary debt restructuring' is a silly term.  Like 'self deportation.' 

Just start printing, already...

tobinajwels's picture

I agree,  Voluntary debt restructuring? is a silly term so could someone please tell me what happens next?

The Big Ching-aso's picture




Let me guess.    And the poor will get poorer?

Peter Pan's picture

And when we run out of ink we can then use blood because that is where this madness leads to.

TradingJoe's picture

It already happened and CDS didn't "trigger" because it was NOT a CREDIT EVENT....bla bla bla...!

WhatCouldGoWrong's picture

Exactly, TJ... it's not a credit event until it's a credit event. And, it just takes the votes of the ten member "event determination" committee to say it's a credit event. It appears that these regional committees at the ISDA are the most powerful financial weapons on the planet. It remains to be seen whether they'll pull the trigger or not.

GMadScientist's picture

We kinda know what happens if they do, but...what if they don't?

How much of this detritus would you buy if you weren't able to hedge it away with derivatives?

Down or down...take your pick.

WhatCouldGoWrong's picture

I, in some ways, hope they don't. By not pulling the trigger on the "default event",... even though they've defaulted in the real world, it will bring the whole CDS market into question. The CDS market, that is still drinking the wonderful tasting, poisonous Koolaid of the Guassian Copula Function, needs to be drastically reduced in scope and size. It'll be bad ju-ju either way.

Mercury's picture

Insufficient recognition of reality will not change it.

Peter Pan's picture

True, but continued failure to recognise reality creates other more dangerous and damaging realities.

Dr. Engali's picture

I'm to the point now where all I see is the words Greece and default...then my eyes glaze over.

Catullus's picture

Not volunteering to roll over your debt will be declared a voluntary write down and not subject to CDS triggers since you "knew" not rolling the debt would cause the default. Of course, no one will mention to the ISDA that no bankruptcy in history would have had ever occurred if creditors had continued to roll debt, but never mind that.

Cognitive Dissonance's picture

This is all just pissing in the wind. Face it boys. Stop worrying about getting your shoes wet when you're up to your chins in sovereign shit.

Since no one is really going to do anything to solve these problems I recommend a full body condom and a tractor trailer load of handy wipes.

WaEver's picture

If Greece defaults what happens with all the GGBs and Greek T-Bills the ECB holds under is different repo operations with mainly greek zombie banks as counterparts ?

Instant Wealth's picture

Wallpapers for ECB bathrooms ?

rsnoble's picture

So does this mean the IMF(US) steps in with the usual binary bs?  The FED already said it wouldn't bailout the EU. You know what that means. I don't see how they can but when you create shit out of thin air who knows. It's def. more complicated than I have knowledge of.

In any case this is a bad situation that's probably only going to get worse.  A few years ago I wasn't much into all the conspiracy stuff like 2012 but this year sure is shaping up to be interesting.......to say the least.

asteroids's picture

Greece IS mathematically insolvent. This Mexican standoff won't last forever. It's only a matter of time before someone bales.

Village Smithy's picture

Absolutely, TPTB are working feverishly to position for the failure. Once someone has convinced themselves that they are tactically positioned they will trip it.

JPM Hater001's picture

"Well, a day ahead of the February 15 Eurozone meeting at which Greece's fate is finally supposed to be settled, things appear to be quite amiss. "

I have 20 Euro this day passes in a meaningless way.

Thursday headline: "Failure at Summit followed by ECB assurance everything is fine."

samcontrol's picture

well i have about 20k on vxx option saying this day does NOT pass in a meaningless day.

expect the unexpected.


adr's picture

Hey Germany, how much debt can you float? Nothing, ok. Hey England, how much debt can you afford to give Greece? Nothing, ok. Hey, Japan can you buy some Greek debt? Oh you just printed a trillion yen, sorry dumb question. Hey USA, USA all the way, whatca gonna do? Oh you already backstopped the bailouts. Hey China, Greece needs you baby, money for Europe your great trading partner? Oh, you want Athens to be renamed Little Shanghai and all drilling rights for the Medditerranean. Ummm, yeah we can do that.

Jlmadyson's picture

A Credit Event you say? Well by golly we have a winnere here!

Peter Pan's picture

I am not sure who is more stupid. The Greeks for getting themselves in trouble or the Europeans for trying to get them out of trouble.

VelvetHog's picture

What's the Greek CDS exposre?

pods's picture

If I eat carrots tomorrow Greece will default.


DeadFred's picture

As time goes by my WAG predictions that the S&P will break last years highs seem less likely. One could make a case that market manipulators would be pleased to print a double top then buy back in at 950 or so. Or whatever low point the algos think is appropriate. The highly reliable ZH market indicator (articles about events a month or more in the future =bull market, posts about near dated events =bear market) is now turning south and my bull positions are closed.

flyonmywall's picture

It's pretty obvious that default is bullish, since CDS are a zero sum game, it really doesn't matter if Greece defaults, you see.

sarcam /off

Somebody is gonna lose, and somebody is gonna win if default happens. Of course, some bankers are going to win, some are gonna lose, but the biggest loser is the Greek population. They basically got raped, used, and gangbanged, and now they are going to be thrown to the curb after that usage, in a messy default.

Bankers got their orgasm. Nothing else matters.


Sandmann's picture

a critical part of the Greek debt deal is the private sector's agreement to roll over existing holdings into new bonds, which as we learned may now see the 15 cent per bond sweetener into new EFSF debt reduced.


The Bond Sweetener courtesy of the EFSF is The Achleitner Plan to have the EFSF issue "CDS"  which conveniently protects the Allianz SE Portfolio

ljag's picture

I thought bond sweeteners made your coffee taste funny?

Instant Wealth's picture

German managers advise Greece to return to the Drachma. A survey made by manager magazin shows that 57% of the sample vote for the country's exit from the euro zone. Bosch's CEO Franz Fehrenbach even goes so far as to say that Greece had to leave the European Union - if necessary, at gunpoint. (SPIEGEL)