January 30th, 2012
Econintersect: Greece’s Prime Minister Evangelos Venizelos says the country will not cede sovereignty to the EU (European Union) but other indicators are surfacing Sunday (January 29) that a settlement may be near for the latest crisis event in the ongoing European debt situation. As the European summit prepares for a Monday afternoon kick-off in Brussels, the long stand-off about what to do about the Greek debt crisis may be coming to an end. As a GEI Analysis article summarized on Saturday night, the Greek debate may end up being nothing more than a “game of chicken.” A more catastrophic outcome has been envisioned by the European think tank GEAB/E2020 (GEI Opinion).
According to an AP article at Yahoo News, private investors are about to take a 60% haircut on €206 billion ($265 billion) along with an interest rate cut. In addition the maturities of the new bonds will be later than for the old debt. The deal will reduce Greece’s debt to about €82 billion and the annual interest expenses from €10 billion to €4 billion.
The AP article has conflicting numbers stated. At one point it says debt would be reduced to €103 billion. At another point the AP says debt will be reduced by at least €120. Until additional information is available Econintersect will use as definitive the total debt of €206 billion and the 60% haircut figure. That gives the €82 billion value for the new Greek debt.
Where has the €124 billion +/- gone with the haircut and who is losing the €6 billion annual interest income? The losers biggest are banks, insurance companies, pension plans and hedge funds who invested in the original bonds. However, if the deal had not been reached it is quite likely that those investors would have lost everything and a total default was quite likely.
If the deal now being reported were to fall apart it is widely thought that European financial crisis would ensue immediately, and possibly a global conflagration.
Greek fury at plan for EU budget control (Financial Times)*
This WEEK in the European Union (EU Observer)*
Private investors near deal on Greek Debt (Associated Press at Yahoo News)*
Proposal: Start the Occupation of Greece (GEI News)
The Coming Resolution to the European Crisis (by Fred Bergsten and Jacob Funk Kirkegaard, GEI Analysis)
The Great Geoplolitical Swing of 2012 (LEAP/E2020, GEI Opinion)
*News articles cited were found on Econintersect Europe newspaper page.