Question:
What is your updated opinion(s) on the situation in Greece? One week the market goes up because a solution is agreed to. The next week it goes down because there are worries that it will not be agreed to. Is the problem more as to how it will affect neighboring countries?
Answer:
Greece had a deadline on Thursday, March 8th, to get more than 75% of the people who hold Greek debt to agree to take a 53.5% haircut on their bonds. To get more than 75% of the debt holders to agree to take the equivalent of $40 on a $100 debt is an uphill battle at best. Friday, the country forced certain private creditors into its debt restructuring, who did not want to accept the terms of the deal.
Some of the Greek debt has collective-action clauses that will force bondholders to take a loss without their approval. Additionally, some of the bonds fall under Greek law, and bondholders can be forced to take the loss. However, others fall under English law. If they are forced to take a loss without approval, lawsuits will likely follow.
As a result of the collective-action clauses inserted into Greek bonds, the International Swaps and Derivatives Association ruled that payouts on a net $3.2 billion the credit default swaps meant to protect against losses on Greek sovereign debt have been triggered.
We believe that Greece is on its way out of the Eurozone.
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