The stance, delivered to a consortium of international banks at the weekend by Vittorio Grilli, Italian treasury chief and lead eurozone negotiator, is a victory for German-led northern creditor countries who have been pushing for Greek bondholders to accept far more of the burden for a second bailout.
France, the European Central Bank and the International Monetary Fund remain concerned the tough stance could trigger bondholder insurance policies known as credit default swaps, sparking investor panic because of uncertainty over which financial institutions face CDS losses. “The CDS market is not very transparent”, said Jacques Cailloux, European economist at RBS. “You don’t know where the exposures are.”
Some countries, including Germany, were less concerned about a so-called credit event – an explicit default that would trigger CDS contracts. But others, including the IMF, feared consequences similar to the collapse of Lehman Brothers in 2008. Steven Kennedy, a spokesman for the International Swaps and Derivatives Association, said the group’s determination committees only rule on credit events after they are asked to intervene, but the determining factor is whether debt holders agreed to take losses.
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