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Generational Dynamics Web Log for 10-Mar-2012
10-Mar-12 World View -- Greece completes bond swap deal with non-default default

Web Log - March, 2012

10-Mar-12 World View -- Greece completes bond swap deal with non-default default

Yemen seeks $3-5 billion bailout from 'Friends of Yemen'

This morning's key headlines from GenerationalDynamics.com.

South Koreans protest China's repatriation of North Korean defectors
Greece completes bond swap deal with non-default default
Greece's PM Papademos promises to use money wisely
Greece's GDP contracts 7.5% in last quarter of 2011
Yemen seeks $3-5 billion bailout from 'Friends of Yemen'

South Koreans protest China's repatriation of North Korean defectors

South Korean conservative activists hang an effigy of North Korean leader Kim Jong-un during a rally against the Chinese government (AP)

South Korean conservative activists hang an effigy of North Korean leader Kim Jong-un during a rally against the Chinese government (AP)

South Koreans have been demonstrating in front of China's embassy in Seoul to protest China's plans to repatriate dozens of North Korean defectors, sending them back to North Korea, rather than letting them continue to South Korea. North Koreans defecting to the South often do so by traveling through China, hoping not to get caught by Chinese police. According to the South Korean lawmaker who sparked the protests, "The North Korean defectors didn't flee their country to live in China. They left so they could live in South Korea. China should respect that." AP

Greece completes bond swap deal with non-default default

Politicians have been saying for months that a default on Greece's debt will not be tolerated, but on Friday Greece avoided a default by calling it a "restructuring." This whole saga has been amazing. It was on July 21 of last year that European officials devised this plan where private investors would "voluntarily" lose 21% of their investments in Greek bonds in order to bail out Greece, and all it would take would be a few weeks to iron out some details. It had to be "voluntary" so that Greece would not go into default.

As the weeks went by, it became clear to everyone that 21% would not be enough to save Greece. The amount was raised to 50%, then to 68%, and now stands at 75% -- that the private sector investors (PSIs) would lose. There was a question about how many private investors would be willing to take that loss "voluntarily." Greece announced on Friday that 85.8% of the eligible bonds would participate in the voluntary bond swap. It will be interesting to see in the next few weeks what kind of threats and extortion were used to convince that many private investors to participate. I wouldn't be surprised if there were some physical threats involved.

Once the "voluntary" bonds were accounted for, the next step was to force others to participate involuntarily. This was done through retroactive "collective action clauses" (CACs), bringing the total participation rate to 95.7% of the total eligible bonds.

This was pretty clearly a form of default, but there have been questions about whether the International Swaps & Derivatives Association (IDSA) would call this a "credit event" that would trigger the insurance payments to investors who had purchased credit default swaps (CDSs). There had been concern that politicians would pressure the IDSA to NOT call this a credit event, but a credit event was announced shortly after the CACs were announced.

The result is that Greece's debt has been "restructured," which is not a bankruptcy and not a default, though it is a credit event.

This will trigger about $3 billion in insurance payouts to holders of CDSs. In this kind of situation, there are always concerns of a chain reaction of bankruptcies, but politicians have been downplaying this.

The successful completion of the bond swap was a requirement of the EU and IMF for approving the next bailout of Greece. Presumably the bailout will now be approved, in time for Greece to make its next bond payment on March 20, when €14.5 billion in bond repayments are due. Reuters

Greece's PM Papademos promises to use money wisely

Prime Minister Lucas Papademos (left) speaks to Finance Minister Evangelos Venizelos in Parliament on Friday. (Kathimerini)

Prime Minister Lucas Papademos (left) speaks to Finance Minister Evangelos Venizelos in Parliament on Friday. (Kathimerini)

The bond swap relieves Greece of about €100 billion in debt, which will save Greece a great deal of money in interest and debt repayments. In a televised speech on Friday night, Prime Minister Lucas Papademos said that the deal served as a "window of opportunity and hope." He said:

"From within a deep recession, and the trials of the Greek people, there rises the hope for an exit from the worst crisis since World War II.
We do not have the right to waste the money that we will save in interest and debt repayments. We must use it to modernize our infrastructure, make our economy more competitive, put the state in order.
[The country will emerge from the] quicksand of the past few months. For the first time Greece is not adding to but reducing the debt burden on its citizens and the next generations.

This is an interesting statement because it's widely feared that powerful labor unions will force the government to use any available money simply to increase public sector wages and benefits. Kathimerini

Greece's GDP contracts 7.5% in last quarter of 2011

Few people credibly believe that there won't be a new Greek crisis within a matter of weeks. The entire bailout plan that's supposed to save Greece is based on assumptions of economic growth that, with absolute certainty, will not be met. As if to prove the point, Greece's government announced that the economy had contracted by 7.5% in the last quarter of 2011, much worse than expected. Dow Jones

Yemen seeks $3-5 billion bailout from 'Friends of Yemen'

Yemen's government will present to the "Friends of Yemen" meeting in Saudi Arabia on April 23 a request for an emergency infusion of $3-5 billion in aid for "salvage and revival," following a year of protests and violence that forced Ali Abdullah Saleh to step down as president. The Friends of Yemen forum will include the United States, European Union countries and the Gulf Cooperation Council. Yemen says that the money would go towards the state budget, infrastructure projects and aid to help poor Yemenis buy food and fuel. The National (UAE)

(Comments: For reader comments, questions and discussion, see the 10-Mar-12 World View -- Greece completes bond swap deal with non-default default thread of the Generational Dynamics forum. Comments may be posted anonymously.) (10-Mar-2012) Permanent Link
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Generational Dynamics Web Log for 10-Mar-2012 10-Mar-12 World View -- Greece completes bond swap deal with non-default default

South Koreans protest China's repatriation of North Korean defectors

Greece completes bond swap deal with non-default default

Greece's PM Papademos promises to use money wisely

Greece's GDP contracts 7.5% in last quarter of 2011

Yemen seeks $3-5 billion bailout from 'Friends of Yemen'

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Generational Dynamics Web Log for 10-Mar-2012
10-Mar-12 World View -- Greece completes bond swap deal with non-default default