The Eurogroup Statement – Some Thoughts And Questions

It is hard to read the document without a sense that the Troika is no longer “helping” Greece, but running Greece.  You think they would have chosen not to specifically use the phrase “permanent presence on the ground in Greece” given the connotation of “boots on the ground”.  This could have been written without needing to sound so imperialistic.  Small thing, but not sure how many people beyond the puppets will be happy with this language.  For a group that is prolific at creating acronyms, why continue to call themselves “the troika”?  Couldn’t they come up with something a little less sinister sounding?  Either that, or let’s go all the way, and Troika members will have a small sickle tattooed behind their right ear so they can be recognized if need be.

Then there is the focus on the “escrow” account.  Why is there a need to pre-fund each quarters debt service payments.  Especially, when for the next 10 years, there will be minimal debt payments made to anyone other than the Troika (if the PSI is successful).  If all the PSI is 100% successful then Greece will only owe €2 billion per annum in payments to non Troika bondholders.  Is escrow really needed for that?

The PSI is a necessary condition to the program moving forward.  I remain confused as why the PSI won’t be 100%.  Won’t they have retroactive CACS and why wouldn’t they use them?  Even giving the hint that holdouts will be paid out at par seems insane.  And it isn’t as though there is a lot of time in between finding out how votes went, and the March 20th payment.  The list of firms that signed the Creditor Committee Press Statement that was released was underwhelming at best.  I’m sure banks will all have to fall in line, but a bigger negotiating group would provide more comfort.  It looks like they might only represent 25% of the bonds, and since some were Greek banks, who are in turn getting bailed out directly, it is hard to say how much weight their decision carries.

There is some confusion over “profit” distribution of Greek bonds held by the Eurosystem (I guess that is the official name for the ECB and NCB’s) for public policy purposes.  In one part it talks about the income counting towards the profit.  Okay, if it is interest paid, or the accrued interest that will be forgiven, fine, that makes sense.  It’s just giving up interest.  Minor and since even “private” holders will receive their interest under PSI, that seems reasonable.  It’s also not a huge amount of money.  It gets confusing from there, in particular, do they consider that the new bonds can be marked at par, and that can be considered “profit”?  That seems truly bizarre, but might be true.  Though maybe it just a confusing way of saying they will let Greece enjoy the benefit of the discount the ECB bought the bonds at?  That at least makes more sense.

It also looks NCB’s may not charge Greece interest on the debt they hold until 2020?

It seems like they had to write a lot about what the public sector was doing to make the 53% write-down the private sector was taking seem less one-sided.

And even in the end, they had to sign-off with “provided that Greece fully complies with the requirements and objectives of the adjustment programme”.

We will now see what the market has “priced in” but I think it has priced in too much, and there will be roadblocks to this deal going through, with PSI in particular being a potential problem.  That and some people must actually be concerned about continuing with this plan, that although it met guidelines set by the IMF back in November (or so), now looks unlikely to really get Greece on a sustainable path.