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Friday, July 22, 2011

Squatting In Front Of The Eurobankmouser Hole

It is really astonishing how a cat will find a rodent hole and just sit, motionless, for hours, only to move like greased lightning when the unwary rodent finally appears.

After much fruitless browsing, I think I have found the real info on the Greek bond deal at IIF. This is a brief pdf outlining the bond swaps and the underlying pools. The basic mechanism is to use EFSF funds to set up the pools. The investors swapping bonds into the pools take a 21% Net Present Value haircut, but get a stop-loss for their balance sheets:
The size of the Buyback Facility will be determined after further discussions involving the official sector. It is expected to be of sufficient scale that when combined with the €13.5 billion debt reduction through the discount bond exchange, there will be a meaningful reduction in the stock of Greece’s debt relative to GDP. This will be reinforced by Greece’s new privatization program and prospects for higher growth which should emerge as the program takes hold.
Really? But the point is that the participants won't have to care much once they swap in at a loss.

Official SDDS data on Greece. Total central government debt is given as 354,540, with an additional 25,525 of debt guaranteed by the central government. The total of the private Buyback is supposed to amount to around 135 billion by 2020. This does not seem big enough to me to make a meaningful difference. Take a look at that data, and see what it says to you. The May 11th central government revenue of 3,928 million with a deficit of 3,046 million implies a 50% writedown, surely? Current-Euro quarterly GDP for Q1 11 is listed as 55,538 million Euro.

Anyway, here's Greece's latest report. Note that they have cut spending more than budgeted but revenue is collapsing, and this is not surprising because over the year unemployment rose to 15.9%.

Trying to slow the default and manage the fallout.
Nothing more really.
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