Is The IMF Closing The Noose Around Holders of Greek Government Bonds?

October 29, 2011 by  Filed under: Credit 

Christine Lagarde of France is the managing director of the International Monetary Fund. She is presently trying a rather bold approach with respect to dealing with the European debit crisis. Reports indicating that the IMF is threatening to deny any further monetary aid to Greece until assurances are provided that a plan to impose a 50 percent haircut on private sector owners of Greek government debt is agreed to have been leaking into the press.

IMF restructuring plans usually involve the refinancing of debt along with other austerity measures. In the case of the Greek government, the influences of France and Germany on the European Central Bank in connection with a possible default have lead to complications that are blocking progress on the matter. Despite these delays, the European Union has moved to approve a request for disbursement of the next tranche of monetary aid to Greece based on the strength of the most current Troika Report. The Troika is 1) the European Commission, 2) the European Central Bank, and 3) International Monetary Fund. According to this report lenders may be obliged to agree to sustain losses of up to 60 percent on Greek sovereign debt held.

Despite these delays, the European Union has moved to approve a request for disbursement of the next tranche of monetary aid to Greece based on the strength of the most current Troika Report. The Troika is 1) the European Commission, 2) the European Central Bank, and 3) International Monetary Fund. According to this report lenders may be obliged to agree to sustain losses of up to 60 percent on Greek sovereign debt held. This is so because Greece’s debt peaks out at elevated levels and would only decline at an extremely low rate indicating a need for even more debt relief before anyone can ensure the sustainability of the Greek economy. As to how this situation effects the rest of Europe and Great Britain in particular remains to be seen.

Pursuant to reports issued by the Daily Telegraph certain comments released by the IMF suggest that they would no longer be so accommodating when it came to the picking up the full 1/3 when it came to the funding the bailout of the Greek debt problem. That commitment would amount to 73 billion euros, and will not happen unless the European banks were willing to write down fifty percent of the Greek debt obligations that they owned.

Past history tells a story which includes the IMF making contributions of one third of the Greek aid package with the EU picking up the rest. The European Union could always provide Greece with all aid it needed without the IMF’s participation, but this could make an unstable situation worse, as international investor confidence would be shaken. Also, without a formal endorsement from the IMF which has been automatic up until the present time, no alternative solution will be reliably comprehensive, and sufficiently persuasive in connection with keeping the global financial markets selling off once again.

What this all means is that holders of Greek government debt obligations are staring at a 50% haircut, and the in the face along with the extinguishment of a great deal of asset value.

Jeff Webb
forexconqueror
forexnewsmarket

Article Source:
http://EzineArticles.com/?expert=Jeff_Webb

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