Green shoots redux

The IMF’s Lagarde announces “economic spring is in the air“:

A couple of weeks ago, I sat on the speakers’ podium during the opening panel of the Euromoney Bond Investors’ Congress in London. Together with leading industry experts, including senior ratings agencies’ officials, we engaged in a detailed discussion of the contentious aspects of the Greek debt debacle and the fate of the eurozone.

The audience was “top drawer; the room packed with 500 of the world’s biggest bond market participants; the combined assets under management measured in the trillions of dollars.

“Who thinks the upcoming Greek bail-out will be the last, drawing a line under the eurozone’s sovereign debt crisis?” asked the senior Euromoney staffer chairing the panel. “Put your hands up”.

Delivered with a serious demeanour, this was exactly the right question. So deadly was the inquiry, and so germane, that the mood in the room grew uneasy, barely camouflaged by an outbreak of coughing. Scanning this ultra-influential audience, I saw rows of delegates cowed, keeping their eyes locked forwards but staring down slightly, not daring to look elsewhere.

Not a single hand was raised. Not a single hand among hundreds of the world’s leading bond market practitioners was stirred to support a debt swap now presented as the key to the world economy shaking off the post sub-prime torpor and taking us into the sun-lit uplands of sustainable global growth.

On Friday, Greece pressed ahead with the largest sovereign debt restructuring in history. By “securing adequate participation” from the private sector, Athens avoided a big, disorderly default in late March. Holders of €172bn (£143bn) of the €206bn of eligible bonds agreed to take part in the write-down, or 83.5pc. Participation has since risen to 95.7pc after the Greek government triggered retrospective “collective action clauses”, forcing objecting investors to play ball.

This deal was “voluntary”, in the words of one market wag, “in the same way confessions were voluntary during the Spanish Inquisition”. In other words, unless this deal was agreed, bond-holders faced ending-up with nothing at all. Under the current terms, investors swap their bonds for new ones worth 53.5pc less and with easier repayment terms for Greece.

So, Greece has defaulted, despite all of the assurances to the contrary. So, the next question is, who is next? And, of course, how long until Germany pulls the plug on the EU project. Also, there is this to consider: “With the addition of the new IMF/EU loans of $172 billion and the revelation of the guaranteed debt at $107 billion Greece now has $279 billion of new and hidden debts.”