So, Greece has missed its scheduled payment
to the IMF, which should have been made before the close of business yesterday,
and was not. The country is also now at the end of its bailout program which
was arranged with other lenders, including the ECB.
However, according to Bloomberg, this
missed payment is not an event that would trigger a pay-out on Credit Default
Swaps (CDSs), as it is not tied in with sovereign bonds, and represents a bilateral
agreement between the country and the IMF. The rating agencies, too, have let
it be known that they will not be calling a default, at least not for the time
being.
As far as the IMF is concerned,
Greece is merely “in arrears”.
Credit Default Swaps are a kind of
insurance against non-payment of credit instruments. They were the weapon of
choice, for example, when John Paulson wanted to profit from his belief that institutions
that securitised sub-prime mortgages would, at some stage, not be able to
support their creations. CDS’s are normally used as a hedge by those with a
direct interest in a payment, but they are available to anyone, including those
who simply want to attempt to profit from a default.
So the story rumbles on. And on.
ECB
bonds are a different story
There are three payments coming due
by Greece to the ECB in July. The key dates are July 14th, 17th
and 20th. These payments are directly related to bonds so the CDS argument
will not be available to all concerned if one or more of these is missed.
In the meantime action will move to
the political stage. The referendum that has been called for next Sunday in
Greece appears to be still on, as of the time of writing. There seems to be a feeling
that a majority of Greek citizens wishes to remain in the EU and the Euro, so a
vote in this direction could have the effect of changing the political landscape
in the Hellenic Republic once again.
And that could just be the catalyst
for a resolution of this mess.
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