EU DEBT CRISIS – Surprise, surprise – the lenders are backing away from Greek haircuts

And now Spain has a banker running the economy too

During 2012 – unless bondholders in Greek debt take at least a 50% hit on the original repayment deal – the Greek National Debt will balloon to being twice the entire gdp of the country. But on a day when it became apparent that widespread civil disobedience will follow the imposition of electricity bill surcharges in Greece, the confidently ‘agreed’ 50% haircut package made late Summer is beginning to fall apart. Faced with a largely innocent, poverty-stricken population – and the real possibility that they’ll wind up with nothing – the bankers, hedge funds and other related jerks involved are walking away from the table.

On July 22nd this year, I wrote:

‘My informed guess is that the lenders will wriggle out of as many obligations as they can, and probably try to avoid making anything obligatory…’

The leaders of these financial institutions have not delivered – as, again, The Slog’s Bankfurt mole predicted. On September 28th he commented, “What people have forgotten in the midst of all this fantasy about trillions of euros is that the plans we already have are falling apart”. He had – as you’d expect – taken the temperature of the banking community….and found zero enthusiasm for a 20% haircut, let alone the 50-60% being bandied about by Lagarde’s IMF optimists and the mad folk in Brussels.

As the FT reports today, ‘Madrid-based Vega Asset Management, an original member of a steering committee for bondholder negotiators, wrote to fellow investors this month to say that it would consider suing if Greece insisted on writedowns of more than half the net present value of the debt.’ I’d love to know who they’re going to sue, but a longer piece at the Bloomberg site raises even bigger questions.

Very grudgingly forced to accept the 50% writedown two months back, the wriggle now becomes more obvious: ‘Lenders want the 70 billion euros ($91 billion) of new bonds the government will issue in return for existing securities to carry a coupon of about 5 percent,’ claims Bloomberg this morning, ‘The IMF is pushing for creditors to accept a smaller coupon in order to reduce Greece’s debt-to-gross domestic product ratio to 120 percent by 2020, a key element of the Oct. 27 agreement by European Union leaders.’

In fact, Vega is being disingenuous by launching this missile at such a critical time: the Hedge Fund resigned a fortnight ago from the committee of Greek creditors negotiating the debt swap with European authorities, based on the very same refusal to accept a net present value loss exceeding 50%.

It remains a matter of stunned amazement to me that – commercially as well as socially – the banking/lending sector seems unable to grasp what’s at stake. The equally possible alternative view however is that their own parlous financial state means such a haircut would blow them away. In the case of Vega, I’d call that possible but unlikely: but either way, the Shylock’s Code remains the same: “Thou shalt not create a precedent for forgiveness”.

Meanwhile over in Vega’s homeland Spain, the new right-wing government has placed the economy in the hands of Luis de Guindos, former head of Lehman Brothers there, as prime minister Mariano Rajoy looks to return the country to growth and budgetary austerity cover his backside just in case Berlin or the Brussels Sprouts get any fancy ideas about firing him. Smart move Mariano – whose name as you can see is also very close to the new EU standardised Mario nomenclature.

Critics in Spain have accused Rajoy of failing to provide any details about his strategy, which is also a good move bearing in mind recent ClubMed history. He probably figures that the less the eurozealots know about what he’s up to, the better; and that he hasn’t a clue what to do, so why make that clear? So far the PM has told Spaniards that “the outlook could not be more sombre”.

Tidings of comfort and Rajoy, then.