UBS says the 50% writedown of Greek paper is really just 22% after factoring in that only privately held bonds will be subject to the haircut (leaving the ECB, EU, and IMF holdings whole), and also that Greece will then need to recapitalize its banks. In other words, 50% is not nearly enough. “To achieve an actual 50% reduction … Greece would need to implement a 100% haircut.”
From FT:
The difference between a (hair)cut taken on Greek bonds held by investors and a cut to actual Greek debt — illustrated by UBS:
In short, as shown in the above chart, a 50% haircut effectively equates to a 22% reduction in existing debt once the [Greek] banks have been recapitalised. This is far from enough. Or, to put it another way, to achieve an actual 50% reduction in the debt, Greece would need to implement a 100% haircut, i.e. repudiate its debt totally.
Striking result, very simple reality.
What the UBS economists have done is assume that both the ECB’s holdings of bonds and the official eurozone and IMF loans will avoid being written down. This will put all the load on the private holders despite the eurozone loans supposedly ranking equal with them. (Ask the Finnish government how likely that equal ranking will be…)
