"What happens if Greece puts forward an exchange offer which is acceptable to the Troika (the EU, ECB, and IMF), but unacceptable to bondholders — and only say half of them accept? In that event, there wouldn’t be nearly enough acceptances to be able to bail in the holdouts — and as a result, Greece would be paying out on its new bonds and would be forced to default on the old bonds which weren’t tendered.
Narrowly speaking, this would be good for Greece’s fiscal situation. After all, if it’s only making coupon payments on half of its private-sector debt, that saves it a substantial interest expense. But there’s no sense in which Greece actually wants this outcome — for two reasons.
Firstly, even if the ECB encouraged Greece to offer bondholders a very low coupon, it also doesn’t want Greece to be in indefinite default. Some kind of technical default which lasts for a couple of weeks, before the new bonds are accepted? That’s fine. But a protracted legal fight with bondholders trying to attach Greek assets around the world, and waving Greek obligations which are going unpaid? The ECB certainly doesn’t want that. It might be accepting just about anything as collateral these days, but even the ECB might well draw the line at lending against securities issued by a government which is clearly not paying a huge chunk of its debt..."
at http://blogs.reuters.com/felix-salmon/2012/01/25/greece-what-happens-if-bondholders-hold-out/
Narrowly speaking, this would be good for Greece’s fiscal situation. After all, if it’s only making coupon payments on half of its private-sector debt, that saves it a substantial interest expense. But there’s no sense in which Greece actually wants this outcome — for two reasons.
Firstly, even if the ECB encouraged Greece to offer bondholders a very low coupon, it also doesn’t want Greece to be in indefinite default. Some kind of technical default which lasts for a couple of weeks, before the new bonds are accepted? That’s fine. But a protracted legal fight with bondholders trying to attach Greek assets around the world, and waving Greek obligations which are going unpaid? The ECB certainly doesn’t want that. It might be accepting just about anything as collateral these days, but even the ECB might well draw the line at lending against securities issued by a government which is clearly not paying a huge chunk of its debt..."
at http://blogs.reuters.com/felix-salmon/2012/01/25/greece-what-happens-if-bondholders-hold-out/
