Greece Could Activate Collective Action Clauses
In a somewhat unanticipated turn of events, Greek officials have noted their intention to activate collective action clauses that were included in the 130 billion euro bailout disbursement approved last month. The clauses have caused a bit of an uproar and show that there still is dissension among private investors involved in the private sector involvement (or PSI). The sentiment continues to add weight to the Euro against the US dollar, which is now trading just slightly below 1.3250 at 1.3233.
Earlier last month, private investors holding Greek debt agreed to a 53.5% haircut when it came to their investments. Although steep, the cut would be accompanied by a bond swap ladened with sweeteners in order to retain the investor base’s interest in holding the assets.
However, it seems that some parties are changing their minds – finding more problems with the country and its likely inability to make good on its promises. Last week, the market saw Spain – another periphery EU member in trouble – fail to make its quoted deficit targets. Sanctions are currently being speculated on. The news is being coupled with releases by the Troika (European Union, IMF and the ECB) that a third bailout for Greece will have to happen around 2015 – in the amount of another 50 billion euros.
With recent developments, sources are quoting the bond take up as only 55-60% filled – not the 100% that is needed to make the measure voluntary. Should the shortfall continue, Greek officials will surely have no other option but to enact the embedded CACs – making the bond swap involuntary and causing a classified default (by definition of global credit agencies).
Although there is still time to make good on the bond swap, the clock is running out for Greece and international bond holders to come to a verifiable agreement. Failure to do so could very well spell disaster for the Euro and the European Union.
More on Collective Action Clauses - The Deal With Collective Action Clauses and The Euro