The ECB doesn’t want to take a loss. The IMF can’t reduce rates. The ESM or EFSF could take a loss, but politicians don’t want to see that. Who are they kidding? Greece has no ability to pay its debt. It has nothing to do with some magical 120% in 2020 Troika guideline. It is too much principal and interest due now. They can talk about the PSI bonds, but that is just plain stupid. €60 billion of debt, with a 2% coupon and no maturities within 10 years is NOT the problem. These bonds trade at 25% to 32% of par for a reason – they don’t offer good coupons to the investors. These bonds also have good documentation – they aren’t Greek law bonds – so harder to fool with this time around. Also, they are largely owned by strong hands who have taken the mark to market hit. That means they will fight.
The official sector will have to take a hit. The question is will it be an organized and controlled hit, or one where Greece takes decisive action to default? More and more it looks like there is a real chance Greece will be forced to default. The arrogance of the Troika is shocking. They don’t seem to see that if Greece defaults or leaves, they won’t have a choice about how or where to take the losses. They will try and assert themselves, but I think they are reading the situation wrong. They seem to believe they have a choice of whether to take losses or not, when the real choice is controlled losses or losses outside of their control...
If Greece is pushed out, any plan created by the Troika, will be shrouded in doubt. Fear will be high and many investors will make the accurate assessment that any non official sector holder will be “primed” as they become effectively subordinated. Nothing about what has gone on in Greece over the past week is positive for the future of Spain and Italy.