From "Sovereign Liability Management Exercise" To "Reprofiling" To "Muddling Through": The Many Faces Of The Greek Bankruptcy

A week ago it was called "Sovereign Liability Management Exercise" following the politically corrected definition of the Greek bankruptcy by Goldman Sachs. However, after Zero Hedge proposed the unpopular acronym SLiME to capture the essence of this idea, the latest appellation of the current Greek metamorphosis stage from solvency to bankruptcy appears to be "reprofiling." Per Bloomberg: "European finance ministers for the first time floated the idea of talks with bondholders over extending Greece’s debt-repayment schedule, saying that last year’s 110 billion-euro ($156 billion) rescue has failed to restore the country to financial health. Europe would consider “reprofiling” Greek bond maturities as part of a package including stepped-up sales of state assets and deeper spending cuts, Luxembourg Prime Minister Jean-Claude Juncker said. “If all these conditions are fulfilled, we can discuss the question of reprofiling,” Juncker told reporters late yesterday after chairing a meeting of euro-area finance chiefs in Brussels. “It’s not reprofiling or nothing. It’s measures, measures and measures, and then maybe reprofiling.” (And speaking of simple profiiling, perhaps someone can tell us why the Rikers island inmate directory is still down, now for almost 12 hours, and since the time of DSK's admission). But back to Greece, where "reprofiling" is merely the latest term to push for what will likely end up being a consensual restructuring: "Introducing that prospect marks a break in Europe’s crisis- fighting strategy, with governments potentially shifting some costs to bondholders instead of relying on taxpayer-funded bailouts to stamp out the debt crisis. The talks were clouded by the absence of International Monetary Fund Managing Director Dominique Strauss-Kahn, who was denied bail in New York yesterday after being arrested on sexual-assault charges." Of course, when that fails, there is always the last case definition: the "muddling through" one, which is the one known as the "rolloff" where reality finally meats the can in the street, and freefall bankruptcy follows.

Bank of America is on the last case:

Last Friday’s GDP releases painted a much less worrisome picture of the pressures the European periphery faces from the triple-whammy of higher oil prices, a stronger EUR and higher interest rates. We have also seen a significant correction in oil, the EUR and ECB rate-hike expectations over the last week. This has resulted in unchanged spreads of Italy and Spain, despite the wider risk-off moves, and against a strong rally in Bund yields. Portugal has also benefited from Finnish support and last night’s approval of its €78bn funding program by  the Eurogroup and ECOFIN. However, the woes experienced by Greece highlight the extent to which investor confidence remains susceptible to uncertainty. Without the results of the IMF review, Monday’s statements on Greece were another example of the muddling-through approach forced onto European policymakers.

The table below (please click on publication link to view) discusses all the various options that have been proposed for Greece, along with the likely market impact. As is obvious from the table, the most likely options are the ones that will represent a continuation of the current approach of incremental funding in return for continued reform. Catharsis of the kind some market participants imagine would be achieved by an early restructuring will remain elusive. We, therefore, remain strategically underweight Greece, Ireland and Portugal. Ireland cash bonds in particular look prone for a correction given the significant tightening in CDS spreads.

For Italy and Spain, the absorption of Spain’s supply this week will present a key test of market appetite. With the weaker EUR and lower oil, the market may remain sanguine, until we get closer to the publication of the EU bank stress tests. However, we maintain our tactical short in BTPS vs Bunds going into the Spanish supply.

And a pretty but completely useless chart: