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ECB Bond Exchange Spurs Likelihood of Payout on Greek Credit Default Swaps
By Abigail Moses - Feb 17, 2012 6:15 AM ET

Credit-default swaps insuring Greek government debt may pay out because a proposed bond exchange by the European Central Bank paves the way for losses to be imposed on private investors.
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The yield on the Greek 2022 bond today climbed 60 basis points to 33.98 percent, with the price at 20.825 percent of face value. The price of the 4.3 percent note due March 20 declined to 39.05 percent of face amount, from 42 yesterday.

Default swaps insuring $10 million of Greek debt for five years cost $6.8 million in advance and $100,000 annually, according to CMA. That implies an 89 percent chance the government will default in that time.

A total of 4,183 contracts insuring a net $3.2 billion of Greek debt were outstanding as of Feb. 10, according to the Depository Trust & Clearing Corp., which runs a central registry for the market. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.

http://www.bloomberg...ault-swaps.html

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a few more details-

"The Frankfurt-based ECB is exchanging its Greek bonds for bonds of an identical structure and nominal value, the only difference being that they would be exempt from so-called collective action clauses, the officials said late yesterday on condition of anonymity. One said the bonds have a face value of about 50 billion euros ($65 billion). An ECB spokesman declined to comment. Giorgios Zanias, chairman of the Council of Economic Advisors to the Greek Finance Ministry, didn’t respond to calls to his mobile phone.

The move may be completed by Monday, the officials said. That could pave the way for a private-sector bond swap that aims to slice about 100 billion euros off Greece’s debt as the embattled nation struggles to stave off default. Euro-area finance ministers convene in Brussels on Feb. 20 to discuss a second bailout for Greece that includes a debt-swap agreement.

http://www.businessw...oid-losses.html

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Feb 18, 2012  
Europe playing with fire
By Victor Kotsev

As discussions about whether Greece should be allowed to default on its debt or be kept on financial life support pick up between European capitals, one gets the impression that the Europeans are playing with fire - the fiery demon of old nationalist hatreds - and are rocking the very boat in which they find themselves together.

On Thursday, the Financial Times reported that a deal for a 130-billion-euro (US$170 billion) bailout, expected to be finalized next Monday, would "contain unprecedented controls on Athens' ability to spend funds" such as "an escrow account that must always contain enough cash to pay Greece's debt for nine to 12 months" and "a permanent and beefed-up presence of international monitors who will attempt to keep real-time tabs on the Greek government's spending decisions". [1]

Other reports are more cautious about the precise parameters of the deal, which will also involve private investors accepting losses on Greek government bonds. The Economist, for example, points out that "[t]he delays may reflect the brinkmanship that is part of any tough negotiation. Greece is short of cash but not of bargaining chips. Without fresh bail-out money, it faces a chaotic default ... [which] might provoke wider contagion." [2]

Yet the writing has been on the wall for some time now, and the signs have only become more worrying. Ever since, two years ago, the Greek deputy prime minister at the time, Theodoros Pangalos, attempted to lay responsibility for the financial crisis on Germany, blaming the Nazis for stealing the Greek gold some 70 years earlier, extreme nationalist sentiment in Europe has received a new boost - the financial crisis


http://www.atimes.co...y/NB18Dj02.html