Greece - Ouzo and Uh-Oh, Restructuring Lite

Greece continues to find ways to avert a default/restructuring of its debt. The problem here is that the austerity measures are not enough, there aren't enough assets to privatize (at fire sale prices) and the country just cant get its act together.

(NYT) Despite pressure from lenders for Greece to show a unified front in solving its debt crisis, Prime Minister George Papandreou had little apparent success Tuesday in persuading his political rivals to back additional tax increases and spending cuts. The ruling Socialists have a comfortable six-seat majority in the 300-seat Parliament and should be able to pass the measures without the support of the opposition. But Greece’s creditors have been pressing Mr. Papandreou to seek consensus for the deeply unpopular reforms before presenting them to a Greek public weary of a year of austerity, arguing that some degree of political consensus would make implementation easier. - New Democracy, a resolute "NO", Communists "NO", Popular Orthodox Rally "Unclear" (the Fed would be proud of their “We say no to indefinite consensus but yes to joint responsibility,”  Consensus?  Not happening.

And of course the many faces of the Eurozone and various lenders also throws confusion into the ring:

OECD head Angel Gurria said in an interview published on Tuesday that rescheduling Greece's debt would not be a bad idea as it would be the lesser of two evils, with many fearing the country could default. "The decision to move toward a rescheduling of Greek debt doesn't seem like a bad one to me," Gurria was quoted as saying in daily Le Figaro when asked whether Greece should restructure its huge debt. "It gives Greece time to digest its adjustment measures. For markets, allowing a delay in repayment is a lesser evil which does not imply a reduction in the principal," said Gurria, secretary general of the Paris-based Organization for Economic Co-operation and Development. Is this not still a default?????  Article here: OECD on Greek Debt

Hold it, stop the presses - note the word allowing?  From Citi:

“It is certainly possible to envisage forms of restructuring which fail to trigger CDS, but we are doubtful that they will be employed in practice,” said Michael Hampden- Turner, a strategist at Citigroup in London. “We suspect that European and ECB policy makers will duck the hard decisions.”

European officials are trying to avoid tripping swaps, with French Finance Minister Christine Lagarde saying this week that “anything that would constitute a credit event, is for me off the table.” Speculation is increasing that a restructuring of Greek bonds may be possible without meeting the International Swaps & Derivatives Association’s definitions of such an event.

That could be avoided if changes are voluntary rather than binding,Hampden-Turner said. But even a voluntary restructuring, or “reprofiling” as officials are calling a possible maturity extension, might still trigger the contracts, he said. 

Back to the show:

(Reuters) Dutch Finance Minister Jan Kees de Jager was quoted as saying by the paper that reprofiling of Greece's debt is a "serious option" but only as a possible final piece in a "total package."  De Jager said Greece should first fulfill its promises over reforms, but he also argued for a form of reprofiling in which private investors would remain involved to avoid the necessity for a 'credit event' (sounds like a credit event to me, just saying), the paper cited him as saying.  This could take place via a voluntary extension of the debt maturities by a maximum of three years, the paper said.The Dutch newspaper also said euro zone countries are considering a suggestion from De Jager to take the privatization process of Greek assets out of the hands of the Greek government and to hand it over to an independent organization.  Article here: Kees de Jager on Greek Debt

Moodys weighed in:

"A Greek default would be highly destabilizing and would have implications for the creditworthiness of issuers across Europe," Alastair Wilson said in a telephone interview. "This would result in more highly polarized credit worthiness and ratings among euro zone sovereigns, with the stronger countries retaining very high ratings and the weaker countries struggling to remain in investment grade." Wilson said that the focus after any Greek default would be on Portugal and Ireland, who have also agreed bailouts with the EU and the IMF. Asked if Portugal and Ireland would be at risk of falling into junk territory in case of a Greek default, he said: "Potentially yes ... If there were to be a Greek default there could potentially be multi-notch downgrades to the weakest sovereigns." He said Spain, Italy and Belgium were not in the same category as Portugal and Ireland but would also come under significant market pressure and could face rating downgrades.

Bottom line:  Initial thoughts seem to be pointing to a "voluntary" extension so as not to trip CDS.  Should this be the case, Greek 10 yrs in the low $50s might make sense.  If this is a precursor to  a haircut (CDS triggered), bonds are not as attractive.  Either way, Greek banks are hosed.