With a long night of Euro-deal watching ahead we thought we would leave you some mixed-metaphors to mull over.
This is from Gabriel Sterne over at Exotix (emphasis his):
Taking negotiations right to the wire is the other side of the coin to brinksmanship; extreme brinksmanship can take things beyond that. Greece is at risk of being taken beyond the wire…
The wire in question is the €14.4bn Greek government bond due on March 20th which is looming into view as PSI negotiations drag on.
And Stern’s point is that the type of Greek default is all that matters now:
To misquote a key passage from American Civil rights campaigner Malcolm X on 14 February 1965, the night his house was fire bombed “White, black, brown, red, yellow, doesn’t make any difference what color your default is”. Or does it?
It appears to us inevitable that CDS will be called whether default is triggered by implementation of a retro-CAC, or a missed payment, so that is not the main issue.
The key reason why the type of default matters is the impact it has on confidence contagion, within and beyond Greece. And (working backwards) we think the main channel of contagion that could be impacted is through a deposit run on Greek banks.
And the main reason for such a run, argues Sterne, would be the withdrawal of ECB support brought about by a systemic collapse in confidence or a situation where the ECB could no longer accept Greek bonds in liquidity support operations (without shredding its rule book, that is).
So:
The type of default is particularly important insofar as it impacts on the likelihood of a bank run induced by collateral damage to Greek banks.
Thus, all that is left now is to choose the best type of default:
In practice, the retro-CAC route to default (even though it includes CDS triggers) is less likely to result in systemic collapse in confidence, precisely because it is much more likely to involve measures to tide Greek banks over during the period of default.
To risk summarising with another metaphor… it is better the devil you know.
Related links:
Athens rehearses the nightmare of default – FT
Dash for trash, Hellenic edition -FT Alphaville
Eurozone crisis: live blog - FT
A capital way to defuse Greece’s timebomb - John Dizard, FTfm