In the largest partial debt default in history, 85% of private investors have agreed to take steep losses on their holdings of Greek debt. They will lose more than 70% of their investment. They accepted - in the end - that this was a better deal than allowing Greece to go bankrupt, in which case they would have lost everything. This agreement with private investors is an essential part of Greece's second "bailout". It paves the way for the EU and the IMF to sign off on a €130billion loan - called a "rescue package". Greece, which was facing bankruptcy within two weeks, can breathe again - and so can its creditors.
However, even after the latest loan, the country will still be left with debts of €250billion. The economy is in its fifth year of recession - never, in recent times, has an economy of a Western country shrunk so fast - 16% in just four years. The earliest any overly optimistic economist is predicting growth is 2014.
As expected, the markets reacted positively to the default news. The markets for want of a better term tend to "forgive" quickly. We have already seen this with other structured defaults in Russia, Brazil, Iceland etc. Why? Because all the markets care about is the future - not the past. Basically, a default means you are then a better bet than you were, to be able to pay in the future, the face value of any newly issued Govt bonds plus any interest payments - end result: they will allow you to play. It makes you wonder about our Government telling us all how hell would break loose in the markets if we burned Anglo Irish bondholders.
At the end of the day, this latest episode is yet another in a series of events designed to protect the Euro - at all costs, as well as saving the international banks from a total Greek default. The Greek problem is far from over yet...
