"We don't wish to make a profit" & preparing for "clean" cuts

In the ongoing saga on Greece and the Troika, again a meeting is deferred on whether or not extra money will be granted towards Athens. And the language becomes more harsh by the : "Wealthier countries are playing with fire by toying with the idea Greece should be expelled from the EMU-17 area". "There are plenty who don't want us anymore, some are playing with torches, other with matches but the risk is equally great". Italian technocrat Monti was more sober : "The budget discipline in the euro-zone was shredded back in 2003 when France and Germany infringed the Maastricht stability pact. At the end of the day, there are no good and bad guys". What's at stake ?

Since July 2011, negotiations have been focusing on official loans supplemented by some 100 bio EUR debt relief coming from private bondholders. With Greece not being able to reach previously agreed upon targets (tax collection, public reforms etc), partially due to a severe slow-down in growth, core Europe and the Troika are not really that eager to commit the money. Unless new guarantees are made by the Greek government. The latest initiative imposes 325 mio eur of savings to be established in public investment (not wise), defense and local authorities. Briefly, quid pro quo and a desire from the sponsors to put Athens under curatorship.

But the debate has become interesting by recent central bankers' statements. Remember that the whole semantics on Greece debt restructuring targets a voluntaryprivate sector involvement (PSI) in debt relief with haircuts and clean shaves of potentially 70% in the pipeline. But above all, no public sector involvement. It might not seem important but for the market of CDS and triggering payments, it is important, not in the least for anglo-saxon insurance companies which sold mass protection on these bonds. The ECB has bought some 219 bio EUR of southern and Irish sovereign bonds under its securities market programs for "monetary policy stabilization" purposes. That's the official version, but it is also known as quantitative easing annex monetizing public debt though Frankfurt was probably not in favor of labeling it that way. From that amount, it is estimated that the ECB has shored up Greek bonds @ 47 bio market value but with face value 60 bio eur. Or bonds worth 100% at maturity bought @ 78%.

Now for the interesting part : "It's not in our intention to make money on this operation", dixit NBB governor Coene earlier this week. So it's not in our intention to funnel profits from this operation back towards the central banks which on their turn can channel the money to their respective governments. Alas Mr Reynders, and there goes the idea of a sound investment in a high yield bond. But more importantly, if 78% stays 78% at maturity, how should we call that ? Absence of realizing value added or profit is one way of putting it. Another way is default, nothing more, nothing less. Because at the end of the day, Greece returns 78% of the money it received some years ago. Interesting semantics and it will be interesting as well to witness the big law firms and consultants in London and NY tackling this question of "technically it is not really a default".