DEBT SWAPRESULT’: Hold the euphoria….validation, scrutiny and poison pills still to come

NB some emphases, inaccuracies, misleading bits and updates have been added/subtracted since the original 9.15 am posting here.

The White House-Wall Street-Berlin-Frankfurt plan is still on track

Before everyone forgets what The Slog has said in recent days about this tiresome debt-swap mirage, let me just summarise:

1. I said plans had been put in place for a Greek default March 23rd. The last date set for bond-swap settlements announced yesterday is….March 23rd.

2. I said participation would be between 66-85%. There was a good reason for that top number, of which more later. The final uptake was 85.8%. If you believe that, you’ll believe anything. At least 1.5% was obtained through bribery, of which more at another time.

3. I said as of the night before last, participation was stuck at 74%. I’m still sure it was: as Reuters noted midday yesterday, ‘The exchange has already been accepted by 75% of investors, a senior official told Reuters ahead of Thursday’s 2000 GMT deadline’. In eight hours, another 10% joined. Do I believe that? Not really.

4. I said they would have to use CACs. They used CACs. I said the holdout would be between 12-15%, and could be as high as 26%. At 25 bn euros, the holdout was almost exactly 12%.

5. I said ISDA would declare a default within the 66-85% region. The Greeks got 85.8%. How convenient. Let’s wait until 1 pm GMT to see whether 0.8% is enough to make the difference between default and something else not called a default which is a default.

6. I said that if the debt swap completed, the pro-default-now group will simply start looking for more hurdles. This has already started. Also note how crucial in two key respects the ISDA decision now becomes.

I learned yesterday afternoon from a source close to the German Finance Ministry that their view remains rigid about the 2020 target set by the Troika. In order to get the Greek debt down to 120% of GDP by 2020, the eurocrats have always insisted that the uptake must be at least 90% including forced CAC agreement . Here is the exact phrase from the source’s email:

Debt sustainability – 120.5 of GDP by 2020 – absolutely depends on the amount that PSI saves Greece in repayments. However unrealistic or unknowable any figure for 2020 must be, it is the starting point for the adjustment programme on which bail-out stands or falls…

However, another source has now twice insisted to me that, during a private meeting with Bankfurt in recent weeks, German banking laid reality very clearly on the line by reminding Athens that CAC invocation could get very expensive.

The CAC inclusive 95.7% declared by Athens this morning must now be validated (ie audited) by the Troika. So there’s the first opportunity to unearth some worms. Some will be found: whether they’re declared or not is another matter.

But this is the Big One. Some 25 bn euros held out. If ISDA triggers CDS insurance at 1pm today, I understand German banking at least will say, “Who’s paying for that – and it isn’t us”. So there’s another hurdle. (But let’s not forget, some of the complex – and even derived – insurance contracts may devastate parts of Wall Street: hence, a very tough call for ISDA to make: they may well bottle it).

I chose the 85% top number for participation on the basis of leaked information from sources close to ISDA’s European Determination Committee, by the way. 0.8% may be enough of a whisker for ISDA not to declare default; we’ll know in four hours time.

Last but not least, there are (I’m told by a source in Brussels) three or four ‘poison pill’ hurdles from the original Brussels Accord still being fudged (and in one case ignored) by Athens. Rest assured Herr Schauble will be onto these in due course.

The FT this morning headlined that the Greeks had ‘secured’ the 209bn euro bailout. This isn’t true. The money is in an escrow account anyway, and nothing will be handed over until the swap and the Accord have been satisfactorily fulfilled.

As for the criminality involved in Venizelos getting this result, I’d like to get all the other decks cleared – and do some validation of claims being made in my inbox – before getting onto that. But a Slogpost in some form will follow.

Related: ISDA gears up for default judgement