By Greg Hunter’s USAWatchdog.com
There are more ways for the world economy to get much worse than there are ways for it to get better. One landmine waiting to be stepped on is the Greek sovereign debt. The IMF and the European Central Bank are running the show, and the deal on the table now requires bondholders to voluntarily take steep cuts. Some are calling the debt deal a “highly organized gamble.”
According to the Sydney Morning Herald story out today, bondholders are going to take steep losses, “The deal clinched by euro zone finance ministers in the early hours of February 21 involves investors taking a nominal 53.5 per cent loss, which equates to a real 73-74 percent loss after taking into account the loss on future interest payments.” (Click here for the complete SMH story.) If these are the kinds of losses being forced on bondholders, won’t other heavily indebted PIIGS want the same deal and can the banks afford it? That’s a question for the not-so-distant future.
The only catch in this last ditch effort to keep Greece in the EU is: it’s only good if 75% of the bondholders participate in the debt restructuring. The deadline for bondholders to accept the deal is now Thursday (3/8/12.) If the bondholders don’t take the deal, Greece will likely default on its next debt payment due March 20 and will probably exit the Euro experiment. The deal is far from done. The LA Times reported earlier today, “The IIF (Institute of International Finance) put out a statement Monday listing all the bond holders who are willing to take the deal. Bloomberg estimated that they only account for 20% of the total participants needed. Greece’s finance minister told Bloomberg Television this is the only chance bond holders will get. “This is the best offer because this is the only one, the only existing offer,” Evangelos Venizelos said. If they don’t take it, today’s stock market declines may look like small potatoes.” (Click here for the complete LA Times story.)
So, keep your eyes on the Greek debt deal. If it goes sour, Greece will be the first in a long line of dominos to get knocked down.