In regard to the euro zone officials insisting there will be no further haircuts:
‘The lady doth protest too much, me thinks.’
Mr. Dallara and the rest of the euro mob have as yet not come up with any reason any one nation wouldn’t be better off, as evidenced by Greece, with a whopping big tax on bond holders vs the usual tax hikes and spending cuts otherwise demanded.
By Margo D. Beller
Mar 9 (CNBC) — Charles Dallara, who represented bond holders in the Greek debt talks, told CNBC Friday he doesn’t expect other troubled EU countries such as Italy, Portugal and Ireland to need a similar bond swap.
“I would strongly discourage other governments, other peoples of Europe from going this route,” he said, adding the Greek situation “cast a cloud over the entire euro zone.”
None of these other countries “have the same extraordinary high levels of debt and deficits and none of them have quite the same distortions in the economic system. They are on the right path and should maintain the path of reform.”
Greece’s problems were unique, he said, and the resulting financial crisis was “extremely painful for the citizens of Greece” and “prevented the building of confidence” throughout the euro zone.
Dallara, managing director of the U.S.-based Institute of International Finance, was the chief negotiator representing private-sector holders of Greek debt in the largest bond restructuring in history.
He said he was “quite pleased” that 83.5 percent of the bond holders voluntarily accepted losses of some 74 percent on the value of their investments in a deal that will cut more than 100 billion euros from Greece’s crippling public debt.
“To see so many bondholders voluntarily deliver their bonds into this exchange is remarkable” and speaks to the desire for Europe and investors to “turn the page” on the whole European sovereign debt problem, he added.
Athens had said it would enforce the deal on all its bondholders, activating collective action clauses on the 177 billion euros worth of bonds regulated under Greek law.
That would potentially trigger payouts on the credit default swaps that some investors held on the bonds, an event which would have unknown consequences for the market.
Dallara said activating the collective action clauses was “one of the unfortunate dimensions” of the debt swap, but stressed it shouldn’t stop foreign investment in European sovereign debt.
“The issue is not just one of legal risk in investing in sovereign debt, it’s better credit analysis,” he said. “You have to understand the underlying credit risks.”