How inflammable is the Greek Debt negotiation?

Marathon is a word derived from ancient Greek, so perhaps the Debtathon in Athens should not be unexpected. But it does nevertheless set potentially disturbing precedents for what The Slog predicts is merely the first of many such mysterious negotiations before some kind of sanity returns to the lender-sovereign relationship.

My own source is closest to he/she who is keeping Reuters informed, in that while there are still many balls in the air, the general consensus among those involved is that a deal will be done, and we are now down to the tweeks and clarifications that inevitably precede those 3.50 am closures which are standard procedure in any business deal.

“The lawyers are still shuttling in and out with small changes,” says my veteran source, “But I do not see any major hold-out issues now. There may be one or two mavericks trying for that, but the mood now is or doing this thing”.

However, the Wall Street Journal doesn’t agree…and I’m not one to question the paper’s credentials on this kind of stuff.

‘The two sides had appeared to be closing in on a deal that would give creditors new bonds paying a 3.5% coupon for shorter maturities and rising to a cap of 4.6% on longer-dated bonds. The average coupon would amount to around 4%,’ the WSJ reported, ‘But people familiar with the matter said that the IMF and Germany were pushing for a lower rate, concerned that Greece’s debt wouldn’t return to sustainable levels if the average coupon on the new bonds was around 4%’.

The coupon range being quoted there is wider than The Slog’s information from last Thursday night. But given the Brussels-Berlin-Paris game is to stall on default for as long as possible, their search for such a deal makes sense: they are still pushing for an ultra-low start to keep the pot boiling. Once the key eurozone banks are suitably sandbagged, that particular Troika won’t give a crap what debt-mountain is then faced by the Greeks. There are times when the cynicism of this process beggars even my hard-bitten belief.

“We may not be able to reach a deal before Monday’s eurogroup. This is unfortunate because the finance ministers were supposed to have crucial talks on the [second] bailout loan provided there was a deal on the haircut,” a senior euro-zone government official said.

So maybe it really is going down to the wire – but I fancy this is brinkmanship. A deal will be done. There is too much for everyone to lose if it isn’t.



  1. Pingback: The Eurozone is stabilising - Page 674

  2. These will be bankers and financiers discussing the details. A banker has a profound insight that tells them that 1 is more than 0 and 0 is less than 1. More than that is of little importance. If ever you have spoken to a bank about not being able to pay back some money that was borrowed from them, expect nothing in the way of sympathy save an interest in the contents of your bank account.

    Discussing anything else with them is like discussing flower arranging with a brick.

    My point is this: it is not German banks per se that are being callous here. It is any bank, at any time. I suffered this sort of abuse from British banks when our business collapsed in 2004-5 after the collapse of two of our major contractors. I cannot tell you how distressing it was to talk with someone who had not the slightest concern if your family ate a meal that evening.

    What JW complains of in saying “There are times when the cynicism of this process beggars even my hard-bitten belief” is merely the above not in the context of an idividual but an international one. Indeed I wonder if the bankers are even aware that they are dealing with a country, so absorbed are they in their sums.

    It brings me to this morning’s discussion about incorporated companies. They have no interest beyond the share dividend: how it is procured is irrelevant. That it might be immoral is outside their conceptual ability.


  3. For those people who have been around a while,this is remeniscent of Chris Selmes walking into Keyser Ullman in 1974,and announcing he had lost everything(£20m) and KU was down about £250m. Forget the theoretical coupons,Greece is bust,its creditors will get nothing,no interest ,no capital,more reconstructions,new paper ,new coupons,more meetings, summits,but at the end of the day,NOTHING.The unlikely alternative is for Merkel to use GERMAN MONEY through the ECB or whateverto buy up this rubbish Greek paper at a huge discount,on the condition that the Greeks play by German rules.This is not a realistic scenario.Look forward to more similar scenarios in Portugal and the rest.All those old cliches about the whip hand being not with the lender,but the mega borrower,still apply. Auf vidersehn.


  4. “But given the Brussels-Berlin-Paris game is to stall on default for as long as possible”

    In the telegraph today there were a few articles about the E.U. (France and Germany anyway) pushing to have further tax harmonisation, and bring the ESM in before the end of March. Now if my thinking is correct once the ESM is in place they will be able to rescue Greece etc with German/Dutch etc tax monies without having to worry about annoying things like national governments, parliaments or electorates. Brussels demands the cash,the governments have a few days to pay up and the E.U. sends it where they want.
    Everyone has been talking about can kicking, but is this where the can ends up? It would make sense. I have a feeling that maybe the slog wrote about this a time back, although it could have been elsewhere. But anyway they only need to kick the can for another six weeks, then they have the means to really go to town transferring wealth where they see fit.


  5. All to be found here,, but in German

    “Apparently there are insurmountable difficulties again

    Greece: IIF denies breakdown in negotiations

    Published: 21.01.12, 17:34 | Updated: 21.01.12, 20:44 |

    The chief negotiator for the banks has left Athens during the the middle of negotiations. However, Charles Dallara has departed on plan for personal reasons while the team continues to negotiate, said the Institute for International Finance. An orderly departure looks somewhat different.

    The International Bankers Association is making an effort to hold up the confusion around the Greek negotiations. On Saturday evening a spokesman said that in no way had the chief negotiator surprisingly departed from Athens, it had been planned. The reason: he had an urgent, personal commitment outside Greece and therefore could no longer continue to negotiate. The negotiating team is still in Athens and speaking with representatives of the Greek government.

    This denial is something strange: for either the IIF is not taking the negotiations seriously (otherwise the chief negotiator would not depart, after all, it’s about the future of the euro), or the negotiations have failed (in which case you should say that.)

    The negotiations for a cut in debt for Greece appear in any case to be at an impasse: the direct talks were broken off without result on Saturday. Now, further consultations should be held with the EU and the IMF as to how the crisis can be resolved. The dispute is, as many times before, over the interest rate on the new coupons. A negotiator told the Dow Jones news agency, “At the moment there are no more talks. The talks have become very difficult, because there are again new demands about the interest rate for the coupons.

    The banks appear to have significant reservations. Therefore, they were in the meantime offered an award of compensation from the EFSF – apparently in vain, however, (more here).

    The chief negotiator of the IIF, Charles Dallara, has departed. His team is still in Athens. That the bankers continue to negotiate is unlikely.

    Manifestly, the banks and hedge funds now seem to expect a bankruptcy. For the hedge funds a good deal, because of the CDS, for the French banks, however, it may now lead to serious problems.

    Negotiators are now no longer expecting to be able to submit an agreement by Monday. Then the European finance ministers will meet, who have to decide on the next tranche for Greece. The way it now looks they would be better off donating the money to charity.”

    In other headlines:

    “Papandreou is being threatened with an indictment for falsifying statistics

    Published: 21.01.12, 02:17 | Updated: 21.01.12, 10:54 |

    The former Greek prime minister is said to have been involved in a manipulation of the figures for the deficit of Greece. The state prosecutor has handed over its investigation report on this case to the Supreme Court. The EU is alleged to have also played a dubious role.”
    “Against Monti: “Half of Italy has declared war on the government”

    Published: 21.01.12, 11:56 | Updated: 21.01.12, 17:44 |

    Premier Mario Monti cannot get a grip on his country: In Sicily, truck drivers and farmers are blocking the fuel supply, in the cities taxi drivers have crippled the traffic on many roads. Major strikes have been announced – and the really tough austerity measures are yet to come.
    “Greece is not saving: The EU Commission should take over government

    Published: 19.01.12, 23:06 | Updated: 20.01.12, 09:27 |

    The Greek efforts at making saving in the public sector have up to now been a farce. Instead of the promised 30,000 jobs, just 1000 were revoked. Northern European countries are demanding that the EU Commission, instead of the Greek government, takes over the helm in Greece.”

    To a link from this item:

    “Revenues from Greek casinos are plummeting

    Actually, this revenue was firmly planned-in for the renovation of Greece. But it now appears that the Greek state gambling establishments are losing revenues dramatically. The people prefer to play at illegal ganbling dens or on the Internet.

    The state gambling facilities in Greece have, up until September 2011, taken in nearly 1.5 billion € less compared to last year. According to a report in the Kathimerini newspaper that is 17 percent. Even in the years before the slumps had been similar in size.”


  6. I do wonder though whether or not these nations will sign up to the ESM when push comes to shove….After all, it’s only going to make things worse, isn’t it?


  7. Lets hope they don’t, but Merkozy seem to be on board with it, and everyone seems to take Angie and her pet Frenchman’s word as law nowadays. Although I don’t know whether it’s something that has to be put through their parliaments, that could be interesting.
    There were some interesting comments in dt today speculating that they are trying to push us out of the E.U. with all this tax harmonisation stuff, so that they can get on with going federal without our hindrance. One can but hope.


  8. @KFC

    Greece has been in this state since 1998, only nobody has taken any notice until now.

    Britain on the other hand, keeps things firmly under control. After all, nobody wants dynamite near the City, do they!

    One of the many details overlooked by Britain was this ship, which sank in 1944 and still forms something of a danger – though the Maritime and Coastguard Agency play this down a little. (Let’s face it, woudn’t you in the circumstances? Think Canary Wharf … )

    SS Richard Montgomery

    An investigation by New Scientist magazine concluded in 2004, based partly on government documents released in 2004, that the cargo was still deadly, and could be detonated by a collision, an attack, or even shifting of the cargo in the tide. The bad condition of the bombs is such that they could explode spontaneously. Documents declassified shortly before revealed that the wreck was not dealt with immediately it happened, or in the intervening 60 years, due to the expense. […]

    One of the reasons why the explosives have not been removed was the unfortunate outcome of a similar operation in July 1967 to neutralize the contents of the Kielce, a ship of Polish origin, sunk in 1946 off Folkestone in the English Channel. During preliminary work the Kielce, containing a comparable amount of ordnance, exploded with force equivalent to an earthquake measuring 4.5 on the Richter scale, digging a 20-foot (6 m) deep crater in the seabed and bringing “panic and chaos” to Folkestone, although no injuries. According to a BBC news report in 1970,[8] it was determined that if the wreck of the SS Richard Montgomery exploded, it would throw a 1,000-foot (300 m) wide column of water and debris nearly 10,000 feet (3,000 m) in the air and generate a wave 16 feet (5 m) high. [Emphasis added]


  9. Gemz, so your saying those dastardly Germans have literally mined our banking system? Well I give them top marks for forward planning. ; )


  10. Everyone
    I cannot tell you how expensively boring this story now is. I have reached the stage where as far as I’m concerned, they can sort themselves out – I don’t care either way.
    It’s 11.25pm GMT and I’m going to bed with zero anxiety.


  11. @ Gemz

    I am given to understand that Sheerness is nowadays a regional capital of Chavdom, benefit scroungers and diverse forms of low-life. A 16 foot wave could be an ideal way of cleaning the place up a bit. If some folks in Canary Wharf thereby get wet socks – well, everything has its price!


  12. @Gemz ” Indeed I wonder if the bankers are even aware that they are dealing with a country, so absorbed are they in their sums.”

    In their twisted minds they are dealing with a profit/loss ratio. Nothing more.


  13. @william: “Greece is bust,its creditors will get nothing,no interest ,no capital,more reconstructions,new paper ,new coupons,more meetings, summits,but at the end of the day,NOTHING.”

    But will a credit event be declared?


  14. ‘I cannot tell you how distressing it was to talk with someone who had not the slightest concern if your family ate a meal that evening.’

    I don’t think that the species banker is known for its caring propensities. Rather the reverse, they really could not care less about anyone but themselves. I always suspected that (I have dealt with the banking tribe for years) but events of the last 4 years have confirmed it. The trouble is, that characteristic is now spreading around the UK, infecting even those professions that were thought to be caring by nature. Or at least seeming to care. John, sorry about your business, it’s sad when all that work goes up in smoke through no fault of your own and because of cynical bankers who are driven by their risk aversion rules. And galling that the wretched species is still coining it with no link to performance. Change needed, urgently, but let’s not open the floodgates as Bill Clinton did with mortgages for all. We need intelligent change, but realistically, that won’t come from the species banker.


  15. @Soapy

    it wasn’t the Germans! It was an American Captain asleep that did it.

    Didn’t the Americans try that recently with their toxic assets too? After all, it is 65+ years since that ship sank, and it didn’t do the job … so an American president tried to as well, and that didn’t work … what can they do next??


  16. My secretary was wearing blue stockings on friday.
    I told her that we would be escaping to the love nest in the mountains when the revolution starts, and that I have already bought the ring.
    She was very quiet all day.


  17. I could be wrong – it has been known – but I think the deal is along the lines of 10 years interest free and then an escalation in rate. What’s the likelihood that these new bonds will trade at par? This is a 100% haircut not 70% if I am eveb half right on this. Anyone actually know the answer?


  18. @Gemz & kfc-4past2pm – I’m sure if you met the CEO of IKB Deutsche Industriebank AG you would probably would find he’s a very good fellow.

    IKB are suing Deutsche alleging “Deutsche knew that the subprime market had increasingly come to resemble a house of cards teetering on the verge of collapse.”. They sure did know, they had their backroom mathematicians ‘cooking the books” to pump up the ratings of the “crap” being manufacturing in another backroom..

    IKB is the sort of bank that lends to German SME’s that employ real people, making real things like shovels and picks and 3D printing machines.


  19. @RP

    my experience was in the UK and was one of blank terrorizing through non-communication. It was not funny – and saw to the sundering of a marriage of 20+ years (although it was already on the rocks owing to the pressure of the situation in the UK). Had there been a responsible government in the UK at the time it would have helped a very great deal.

    It is why I warn about sudden changes in an economy. A quarter of a million immigrant workers (or however many there were) does systemic damage. If you were able to see how this affected the UK economy, you would understand why Germany is protecting its industries with every ounce of energy.


  20. @Marc

    The hedgefunds in London bought many of their Greek bonds at 30cts in the Euro. If that is not a 70% haircut, I don’t know what is.

    The Dutch (nationalized/bailed out) bank ING sold €4bn of its Greek holdings and only has €2bn left. I doubt they got €4bn for it though.


  21. Credit event declared? That I very much doubt but, even it it were I also doubt that they would pay out, after all, what would you do in the circumstances, pay out and be damned, or not pay out and be damned?
    At least with the latter option you still have the money!


  22. @Gemz
    If they are going to consider “Boris Island” Airport then something will have to be done with the SS Richard Montgomery apparently
    £1 Billion at least to muck up any BCR


  23. Here’s why – the hedgies care about the CAC on the non-Greek law bonds, as that provides their real leverage. The risks of precedential impact on the global debt markets, and Bundesbank exposure, of forcing a given haircut on these bonds are probably more concerning to the Germans than even the CDS exposure of the French banks, or the size of the coupon and the EFSF sweetener, and the future extent of ESM commitments. Which is why the “few remaining legals” matter and the ball’s back with Angie.


  24. @Carys
    We need intelligent change, but realistically, that won’t come from the species banker.

    I read a very interesting blog this morning, which I have followed for a while now.

    Could creditors boycot the above action plan? Yes, they could but it wouldn’t make sense for them because they have much more to lose from a boycot than from an orderly and fair debt rescheduling. And for those who predict the end of the world should governments not pay out private sector creditors, the EU should have lists prepared of all the sovereign debt reschedulings which have been made since WWII so that private sector creditors (and the public!) understand that a debt rescheduling is quite a normal thing to do.

    Source: Klaus Kastner, retired banker.

    BTW it was me that you were quoting. It rankles still, but more for the reason that people who can only count money have power over those who can grow it through care and attention to the things by which it is cultivated. It is like the farmer who is told by a merchant how to grow more grain; the merchant wants more grain but has little idea of the knowledge needed to tend the soil that sustains the crops that yield the fruits. Do this in business terms and you can see why banks keep making mistakes: they need to employ a few “farmers”.


  25. Very good link. I understand about half of it!

    Bottom line is that it going to be cheaper to pay off the hedgies in full with a fee on top rather than risk the mess. In fact it would have been cheaper all along simply to pay off all of Greece’s external debts at the start – but I guess we are we are. And who is to say that the various parties are going to be rational. No sign of it so far. And this is so complex that unintended consequences are bound to occur – whatever action is taken. But I wonder who is buying up distressed Portuguese debt right now??? And I’d expect negotiations to go to the wire…


  26. @Richard

    Yes, the thought did occur to me when I saw something about “Boris Island” this morning. Funny how these things co-incide.

    Perhaps this was one reason for developing Heathrow instead of an Eastern airport – after all, the pollution from Heathrow usually goes right over London. Whatever else, the SS Whatsit is a very great danger. I heard about it years ago, and thought it had quietly disappeared or become stable. No such luck!


  27. @Rob

    an excellent article, thankyou. Tyler even backs up one or two of my own thoughts – such as this little treat:

    How this will impact the sovereign bond market in the long run is anyone’s guess, but it will hardly be positive. Especially when one considers that going forward even bonds issued under UK-law, should Greece attempt to strip these, will be percevied as insufficiently secure.

    You guys still have some time to get your house in order. But not much.


  28. @Marc

    I doubt anyone save one of Tyler’s “highest caliber of international law and bankruptcy experts” would understand the ins and outs of a piece as detailed and as comprehensive as this.

    As to Portuguese debt, my guess is that the hedgies are buying it up on the quiet in large amounts at heavily discounted rates.


  29. @marcjf:
    Thanks, that’s a very good article which pretty much confirms what many of us know: the EZ is cooked, stick a fork in it and turn it over.
    The only people failing to read the writing on the wall are the EU political elites. Their preference for dancing on pinheads is costing European taxpayers a lot of money and will not solve the crises.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s