Does Greece’s bankrupt without default?

The question is all the more legitimate than the last few days have resulted in an assault interpretations based on several aspects of the agreement of the private sector, which will only be confirmed on March 8. It is difficult to consider that Greece is in default if creditors agree on a form of sovereign debt restructuring.

If agreements are confirmed, indeed, the bulk of the Greek debt will be restructured over 30 years and will be reduced by EUR 107 billion that the banks will accept losing. The interest rate for 2 to 4.3% and that the loan will be repaid only from the 11th year has a substantial impact on the burden of debt that Greece should, we are told, from 160 to 120% was about 2020.

The reason why Standard & Poor's follow-on Saturday-by Moody downgraded the rating of Greece at selective default is that the private sector agrees that restructuring on a voluntary basis. There is obviously something to ask questions. Martin Blessing, Commerzbank's boss was cruel this comment: "Participation is voluntary confession to the time of the Inquisition."

Given the above, the question of whether the issuers of credit default swaps, which ensure Greek sovereign debt arises. The International Swap and Derivatives Association (ISDA), which includes the CDS issuers, concluded that Greece is not in an event of default, it was not a "credit event" by which it would have created a need for issuers of such CDS to repay the loan they have guaranteed. It is interesting to note that the total amount of CDS Greece nest only 3.2 billion euros (less than 1% of the Greek debt!). This position is screaming who thought they were guaranteed against the risk. But it is contradictory to argue that Greece is not in default and force the payment of loss accepted by the creditors of the country by insurers.

Despite this, the European Central Bank can not accept Greek bonds pledge of loans to banks. The selective defect makes this legally impossible ... at least for now. It is hoped that the 800 banks that come to reap the windfall of second 529 billion euros in loans from the ECB 1% in three years will use this capital to buy back bonds. In any case, they will have blessed with a three-year gain of 100% on New Greek bonds: borrow and lend at 1% to 2%, represents a good margin, especially without the use of capital.

This is obviously a great history of science fiction. The parties have sought to find a measure of debt restructuring Greek do not make it technically in default. But Greece is effectively bankrupt.

For two years, Greece saw the ECB's loan, the EFSF, IMF, FESM and other central banks and no longer has access to private capital markets. When, a year ago, his ten-year bonds brought 12%, it has not issued bonds on the capital market. At 37% today, the thing is impossible.

Behind these technical and legal arguments are emerging of considerable interest. But the decision of the ISDA sends an alarm message that the bond of sovereign debt: it is indeed of credit default swap, not credit insurance. This obviously leads to CDS buyers to wonder if they are protected against other European sovereign risks they insured.

This challenge to guarantee CDS could have the consequence of reducing their outstanding loans. The Governments consider them as the culprits of their miseries. That their calls have CDS prohibition had failed to do so might well occur naturally.