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| Eurozone crisis live: Finance ministers to approve second bailout for Greece | |
| (40 minutes later) | |
| 8.14am: In Greece over the weekend, attention turned from the bond swap to the upcoming general election, as my colleague Graeme Wearden reported. Antonis Samaras of the New Democracy party appeared to launch the campaign on Sunday (even though a date hasn't even been set yet), warning that a coalition government would struggle to implement reforms in Greece. Meanwhile, Evangelos Venizelos emerged as the only candidate to take over the leadership of the socialist Pasok party. | 8.14am: In Greece over the weekend, attention turned from the bond swap to the upcoming general election, as my colleague Graeme Wearden reported. Antonis Samaras of the New Democracy party appeared to launch the campaign on Sunday (even though a date hasn't even been set yet), warning that a coalition government would struggle to implement reforms in Greece. Meanwhile, Evangelos Venizelos emerged as the only candidate to take over the leadership of the socialist Pasok party. |
| Analysts fear that a Greek general election could simply deliver more confusion and disharmony, as neither New Democracy nor Pasok (let alone the smaller parties), are likely to win a majority. Here's what Raoul Ruparel of Open Europe told us: | |
| With the two main parties so heavily tied up with the much maligned austerity package, neither one looks likely to gain an absolute majority on its own. Not only does this dampen hopes for more effective governance in Greece over the next few years but it raises significant questions over the long term viability of the latest bailout agreement struck between Greece and the rest of the eurozone. It wouldn't be surprising to see the new government attempting to renegotiate some, if not all, aspects of the package - that is precisely why suggestions that this package offers a clear solution to Greek woes are premature. | With the two main parties so heavily tied up with the much maligned austerity package, neither one looks likely to gain an absolute majority on its own. Not only does this dampen hopes for more effective governance in Greece over the next few years but it raises significant questions over the long term viability of the latest bailout agreement struck between Greece and the rest of the eurozone. It wouldn't be surprising to see the new government attempting to renegotiate some, if not all, aspects of the package - that is precisely why suggestions that this package offers a clear solution to Greek woes are premature. |
| Furthermore, if the new government fails to achieve a clear and strong majority in the Greek parliament, the next year is likely to be marred by a series of challenging and controversial votes on the implementation of more austerity measures. Such a situation could be detrimental to political and social stability in Greece. | |
| 8.06am: European stock markets have opened lower, as expected. The FTSE 100 index in London is down 16 points at 5871, a 0.28% fall. Germany's Dax is down 0.2%; France's CAC has shed 0.3%; Spain's Ibex has opened 0.2% lower while Italy's FTSE MIB has lost 0.4%. | 8.06am: European stock markets have opened lower, as expected. The FTSE 100 index in London is down 16 points at 5871, a 0.28% fall. Germany's Dax is down 0.2%; France's CAC has shed 0.3%; Spain's Ibex has opened 0.2% lower while Italy's FTSE MIB has lost 0.4%. |
| 7.53am: Here are Gary Jenkins' musings on Friday's Greek debt swap and the credit event ruling. Greek credit default swaps won't be activated until next Monday so this is unlikely to cause a panic today. | 7.53am: Here are Gary Jenkins' musings on Friday's Greek debt swap and the credit event ruling. Greek credit default swaps won't be activated until next Monday so this is unlikely to cause a panic today. |
| After about 7 hours of deliberation white puffs of smoke were finally spotted coming from the building where the ISDA committee were deliberating whether or not a credit event had occurred with regard to Greek CDS. Yes it took so long I did wonder if they thought they were choosing the next Pope but eventually they made the decision that the market was expecting. | After about 7 hours of deliberation white puffs of smoke were finally spotted coming from the building where the ISDA committee were deliberating whether or not a credit event had occurred with regard to Greek CDS. Yes it took so long I did wonder if they thought they were choosing the next Pope but eventually they made the decision that the market was expecting. |
| As expected ISDA announced that the utilisation of the collective action clauses is a credit event and thus CDS contracts will be triggered. No surprise there. Indeed the whole Greek debt exchange could have been said to have gone as expected. It was always likely that the majority of bondholders would accept the offer on the basis that it was better to get something rather than nothing. It might well have been the case if a large enough number had declined to participate in the exchange Greece would have undergone a disorderly default and it is possible that bondholders would not have been able to recover anything at all. Indeed under that scenario there might also have been a large negative mark to market impact upon investor's holdings of Portuguese, Irish, Italian and Spanish bonds as well. All that plus in some cases political pressure was always likely to lead to a high participation rate. It was also likely that there would be a minority of investors who decided to hold out on the basis that they hoped that if the overwhelming majority backed the deal that Greece might just pay off the small reminder and others who held out in the hope that enough non-participants would trigger CDS. | As expected ISDA announced that the utilisation of the collective action clauses is a credit event and thus CDS contracts will be triggered. No surprise there. Indeed the whole Greek debt exchange could have been said to have gone as expected. It was always likely that the majority of bondholders would accept the offer on the basis that it was better to get something rather than nothing. It might well have been the case if a large enough number had declined to participate in the exchange Greece would have undergone a disorderly default and it is possible that bondholders would not have been able to recover anything at all. Indeed under that scenario there might also have been a large negative mark to market impact upon investor's holdings of Portuguese, Irish, Italian and Spanish bonds as well. All that plus in some cases political pressure was always likely to lead to a high participation rate. It was also likely that there would be a minority of investors who decided to hold out on the basis that they hoped that if the overwhelming majority backed the deal that Greece might just pay off the small reminder and others who held out in the hope that enough non-participants would trigger CDS. |
| I have previously said that it would be positive if the situation did lead to a credit event being declared on CDS as it would give some legitimacy to the sovereign CDS product. If it didn't trigger following a 70% write down and a €100bn total write off then you have to question your usage of the product. However the more I think about it the more I think that any future such European debt restructuring would have to be viewed on its own merit from a CDS standpoint and we cannot assume that just because CDS has been triggered for Greece that it would necessarily trigger for someone else in the future. After all, if the EU had wanted to ensure that CDS did not trigger that could have organized that by just giving Greece a bit more leeway re its targets or a bit more cash. So it is good news in the short term, but longer term maybe not of much significance. | I have previously said that it would be positive if the situation did lead to a credit event being declared on CDS as it would give some legitimacy to the sovereign CDS product. If it didn't trigger following a 70% write down and a €100bn total write off then you have to question your usage of the product. However the more I think about it the more I think that any future such European debt restructuring would have to be viewed on its own merit from a CDS standpoint and we cannot assume that just because CDS has been triggered for Greece that it would necessarily trigger for someone else in the future. After all, if the EU had wanted to ensure that CDS did not trigger that could have organized that by just giving Greece a bit more leeway re its targets or a bit more cash. So it is good news in the short term, but longer term maybe not of much significance. |
| 7.50am: It's a quiet start for the week in the diary. The eurogroup meeting, which begins in Brussels shortly before European stock markets close, is the main event - will they give final approval to Greece's aid package? Otherwise, economic data from Italy this morning will show how badly the country shrank in the last quarter. Here is today's agenda: | 7.50am: It's a quiet start for the week in the diary. The eurogroup meeting, which begins in Brussels shortly before European stock markets close, is the main event - will they give final approval to Greece's aid package? Otherwise, economic data from Italy this morning will show how badly the country shrank in the last quarter. Here is today's agenda: |
| • Updated Italian fourth-quarter GDP data - 9am GMT • Greek debt swap (locally-issued bonds) completed • Eurogroup meeting begins in Brussels - from 4pm GMT | • Updated Italian fourth-quarter GDP data - 9am GMT • Greek debt swap (locally-issued bonds) completed • Eurogroup meeting begins in Brussels - from 4pm GMT |
| 7.20am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. The new Greek bonds handed to creditors start trading today after Friday's debt swap. They have been changing hands at steep discounts to their face value in the grey market, with a yield of 18%. The International Swaps and Derivatives Association's ruling that the bond deal represents a credit event that will trigger the payout of insurance protection on Greek bonds came late on Friday, so European markets haven't had time to react yet. | 7.20am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis and world economy. The new Greek bonds handed to creditors start trading today after Friday's debt swap. They have been changing hands at steep discounts to their face value in the grey market, with a yield of 18%. The International Swaps and Derivatives Association's ruling that the bond deal represents a credit event that will trigger the payout of insurance protection on Greek bonds came late on Friday, so European markets haven't had time to react yet. |
| In Brussels, eurozone finance ministers are expected to finally sign off on the €130bn aid for Greece - its second bailout package. But despite French president Nicolas Sarkozy's assertion at the weekend that the Greece crisis has been resolved, it is widely thought that the country will eventually need a third bailout. Economic data showed on Friday that the economy shrank even more than first thought in the fourth quarter of last year, by 7.5%. | In Brussels, eurozone finance ministers are expected to finally sign off on the €130bn aid for Greece - its second bailout package. But despite French president Nicolas Sarkozy's assertion at the weekend that the Greece crisis has been resolved, it is widely thought that the country will eventually need a third bailout. Economic data showed on Friday that the economy shrank even more than first thought in the fourth quarter of last year, by 7.5%. |
| Michael Hewson, senior market analyst at CMC Markets UK, said: | Michael Hewson, senior market analyst at CMC Markets UK, said: |
| Greece's decision to invoke collective action clauses to bring the debt swap deal up to 95.7% participation saw ISDA bow to the inevitable on Friday and invoke a credit event and in turn signal the triggering of Greek CDS insurance. | Greece's decision to invoke collective action clauses to bring the debt swap deal up to 95.7% participation saw ISDA bow to the inevitable on Friday and invoke a credit event and in turn signal the triggering of Greek CDS insurance. |
| There still remains some uncertainty as to the effect such an action will have on European banks even allowing for a net payout of around $3.2bn, but in truth ISDA had little choice given the effect ruling against a default would have had on European bond markets. | There still remains some uncertainty as to the effect such an action will have on European banks even allowing for a net payout of around $3.2bn, but in truth ISDA had little choice given the effect ruling against a default would have had on European bond markets. |
| As it is the wriggling by ISDA in recent days over the triggering of the insurance has already created uncertainty as to the worth of such insurance going forward and as such could well make future European bond issuance fraught with difficulty in the future. | As it is the wriggling by ISDA in recent days over the triggering of the insurance has already created uncertainty as to the worth of such insurance going forward and as such could well make future European bond issuance fraught with difficulty in the future. |
Gary Jenkins of Swordfish Research said: | Gary Jenkins of Swordfish Research said: |
| Greece has received the blessing (and soon the money) of the EU and for the time being at least a disaster scenario has been avoided, although as I said the other day Greece only gets its debt/GDP [ratio] to 120% by 2020 if everything goes perfectly which is the most unlikely outcome. So whilst writing off over €100bn of debt can only help Greece it is probably not enough to get its debt back onto a sustainable path and thus what the EU is really doing is buying time for the other troubled European sovereigns to get their houses in order. | Greece has received the blessing (and soon the money) of the EU and for the time being at least a disaster scenario has been avoided, although as I said the other day Greece only gets its debt/GDP [ratio] to 120% by 2020 if everything goes perfectly which is the most unlikely outcome. So whilst writing off over €100bn of debt can only help Greece it is probably not enough to get its debt back onto a sustainable path and thus what the EU is really doing is buying time for the other troubled European sovereigns to get their houses in order. |