Taking a hit

Suppose I lend you £1,000  for ten years at an interest rate of 10%, interest payable annually, the capital to be repaid on maturity.  Then you inform me that you have debt problems and want to do a debt swap,  You propose cancelling my loan and in its place repay me £250 after a fifteen year period at an annual interest rate of 5%.  Try asking your bank to agree to such a proposal.  Yet in essence this is what the Greek debt restructuring is about. No matter what gloss is placed on the restructuring it is a default. Worse still, under the arrangements liability moves to the taxpayer.

The belief in the markets is that there will have to be a third bailout of Greece and that the strategy to turn the Greek economy round is optimistic.

Raoul Ruparel, Open Europe’s Head of Economic Research:
With the use of CACs Greece has entered a coercive restructuring or default – something which Greece and the eurozone have spent two years trying to avoid. While the financial markets can handle the triggering of CDS that this will entail, at some point serious questions need to be asked over the amount of time and money which policymakers have wasted on what has ultimately amounted to a failed policy. Instead, Greece should have undergone a full restructuring combined with a series of pro-growth measures... This deal could end up being a pyrrhic victory: the debt relief for Greece is far too small which means that another default could be around the corner, while the austerity targets are wholly unrealistic and kill off growth prospects.

See also:

http://www.nucleus.uk.net/home/item/a-sticking-plaster-deal?category_id=1

http://www.telegraph.co.uk/finance/financialcrisis/9133389/Greek-bond-swap-QandA.html

http://www.spiegel.de/international/europe/0,1518,820343,00.html
Greece pulls off deal

http://www.spiegel.de/international/europe/0,1518,820302,00.html
The problem has only been deferred.

Interesting graphic:

http://www.telegraph.co.uk/finance/financialcrisis/9133782/Graphic-Greek-debt-deal.html

http://www.telegraph.co.uk/finance/financialcrisis/9135134/Greece-success-in-bond-deal-but-not-in-solving-debts.html
It is a default: official

http://www.telegraph.co.uk/finance/financialcrisis/9135134/UK-in-line-to-pay-4bn-to-Greece-under-Lagarde-plan.html