Even with the about 90% writedown of Greek debt held by private bondholders, Greece of course is still choking on way too much debt relative to the size of its economy which continues to shrink for the 6th year. Notwithstanding every attempt on the part of the EU and IMF to get Greece more money via existing bailout facilities on the condition that Greece adheres to current demands, there is no way Greece will be able to pay off the debt owed to public bondholders such as to Euro zone governments, the IMF, and the ECB. These entities must eventually take a hit if Greece has any economic chance under current circumstances. To this, Draghi in his press conference reiterated that he will not take a hit to his 50b+ euro holdings of Greek debt when he said “rescheduling Greek bonds would be monetary financing.” As we know, he’s treating the bond buys under their SMP program as senior to private bondholders but changed his mind on any new purchases under OMT which would be pari passu. This game will be a major sticking point going forward and Greece’s PM is highlighting it by just saying he “would ask Draghi for more accommodating terms on Greek debt the ECB holds” according to DJ. He then said it “would be ‘very positive’ if the ECB rolled over Greek bonds.”

Category: MacroNotes, Think Tank

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