Europe faced another key deadline on Thursday to determine if Greece will receive the €130-billion bailout it needs to avoid default later this month.
Private bond holders have until Thursday evening European time to sign up to a bond swap that will deliver a 53.5 per cent haircut on the nominal value of €206-billion Greek bonds. Without this private sector involvement, the European Commission, European Central Bank and IMF will not dispense the second aid package the country desperately needs before March 20. The Greek government will publish the results first thing Friday.
At issue is how many bond holders sign up: At least half must do so to make it legally binding, while at least 66 per cent must sign up for Greece to be able to invoke a collective action clause, forcing others to participate too. However, the crucial one for investors will be crossing the 75 per cent mark, the target Greece set for itself. If they take up a level below this figure, the country won't implement the scheme, Greece told investors in the offer letter.
While big European banks are expected to sign up and France's Societe Generale and Italy's UniCredit already have, “the uncertainty lies with other investors such as hedge funds, for whom the prospects of Credit Default Swaps kicking in may be more enticing.”