The Greek Debt Exchange: An Autopsy

This paper is a “must read”  – available here.

29 replies on “The Greek Debt Exchange: An Autopsy”

Translation of the abstract:

We find that (i) the aggregate haircut was 55-65 percent, depending on how the old bonds are valued. This is lower than the numbers reported in the press, and less than in Argentina 2005;

They (The Troika and Greece) “lied” about the numbers in the PR spin.

(ii) the distribution of haircuts across bonds was exceptionally unequal, ranging from a close to 80 percent on very short term bonds to no haircut at all on Greece’s longest dated bond;

Some bondholders took a huge hit, but a few sharks held on till the very end and made an absolute killing, getting their full bond payment courtesy of the general EU taxpayer.

(iii) the debt relief received by Greece was large, in the order of 48 percent of GDP in present value terms (excluding bank recapitalisation costs generated by the restructuring);

The EU taxpayers in question, were overwhelmingly not Greek.

(iv) while not voluntary, the exchange was not especially coercive based on a standard set of criteria

Despite everything, the bond holders were treated with the softest of kid gloves.

The moral of the story is: Buy Greek bonds for 20% of their nominal value, hold onto them like a badger in a pit, and in the end the EU/ECB/IMF will pay you 5 times your investment by taking the money out of public exchequer funds. They won’t even give you a hard time over it.

And that’s Financialism baby. Sitting on the sidelines cribbing and moaning is a lost cause in this regime.


Pretty good summary!

The problem, however, with this paper is that it ignores the political context in which the deal was struck. Greece did not get to live beyond her means without the active participation of the main European economies, notably with regard to credits for the purchase of military equipment. And this was far from being the only example of the irresponsible extension of credit tailored to keeping the wheels of domestic industry turning. The Olympic Games 2004! Anyone remember them!

From the perspective of the same creditors, Ireland is in an entirely different situation.

Very similar story in the Examiner starting with..
“Hopes for a deal to ease Ireland’s bank debt before the Budget have been dashed with the Taoiseach hinting it could be the new year before it takes effect…….”

It could be many years ..if ever.

@ Fiatluxjnr
The answer to your question lies almost certainly in geopolitical considerations. Greece spends enormous sums on unnecessary military equipment (mainly from German and French manufacturers) to ostensibly protect itself from another NATO ally (!) which is on the edge of going to war with Syria i.e. Turkey.

Until the political is put back into the study of economics, I will continue to be reminded of the inimitable Pete and Dud sketch.

One-Pager No. 33 | September 2012
The Collapse of a Nation
Who’s Afraid of Greece?

As the Greek summer comes to an end, the predatory austerity policies of the second bailout plan are in full swing, while the fiscal consolidation program continues to run its wayward course. Overall, what was once a modern democratic polity is beginning to resemble a feudal state. As the government seeks a broad agreement on its latest spending cuts, the Greek labor movement is set to embark on a new round of paralyzing strikes and demonstrations. This year, the truly hot season in Greece is only just beginning.

Conference Proceedings, September 2012
21st Annual Hyman P. Minsky Conference on the State of the US and World Economies: Debt, Deficits, and Financial Instability

The 2012 Minsky conference addressed the ongoing and far-reaching effects of the global financial crisis, including the challenge to global growth represented by the eurozone debt crisis, the impact of the credit crunch on the economic and financial markets outlook, the sustainability of the US economic recovery in the absence of support from monetary and fiscal policy, reregulation of the financial system and the design of a new financial architecture, and the larger implications of the debt crisis for US economic policy—and for the international financial and monetary system as a whole.

The problem, however, with this paper is that it ignores the political context in which the deal was struck. Greece did not get to live beyond her means without the active participation of the main European economies,”
Don’t you mean Banks?

@ Fiatluxjnr

“It could be many years ..if ever.”

I think the issue of Irish debt relief will come to a head in February as we approach the next payment of the promissory note. I am pretty confident that some sort of deal will be done to extend the time line of those payments and reduce the interest burden in the early years of the repayment schedule. Of course, it is very much up in the air how much of an improvement in terms the Irish government can negotiate, but the optics would be terrible if it paid the full €3 billion over to IBRC without any deal in place.

As to the matter of the ESM buying equity stakes in the Irish banks, I’d be inclined to agree that could drag on much longer and potentially not happen at all.

regarding this:

…. all to pacify the natives during the presidency maquerade.
The one thing the politicians & politicised economists calling for federalisation like to ignore is the consistently growing opposition across europe to increasing centralised powers.
Trying to prevent the spectacle of visible expressions of antipathy from the country in the president costume, doubtless.

There will never be a debt removal as long as the choice is theirs to make; ie; without serious doubt that Ireland’s compliance with the project is steadfast.
And if they are concerned solely with the political personnel, they are right.

Yes it appears that a deal on the promissory notes might only involve prolongation and perhaps a decrease in interest rate…but it does nothing for our debt mountain. As for selling them bank shares…fairy tale stuff.
Seems that Draghi has a problem with monetary reiterated by him yesterday and a lot of people are increasingly skeptical of his justification for bond buying, well explained by Der Spiegal ..

I see Enda mde the cover of Time. I expect many on this blog will choke on their Cappucinos and smoked salmon sandwiches this afternoon.

…he sounds like one of those ads on NBC canvassing for investment in the former soviet republics….

@David O’Donnell

‘Who’s afraid of Greece?’

Last night in Paris Prime Minister Antonis Samaras categorically ruled out the possibility of his country leaving the Euro.

Speaking to an audience of 200 at the George V hotel invited to celebrate the 125th anniversary of the founding of the International Herald Tribune, Mr. Samaras joined senior IHT management and journalists as well as a distinguished panel to discuss ‘Restoring European Competitiveness on the World Stage’.

The panel included Vivianne Reding, VP of the European Commission, Carl Bildt, Foreign Minister of Sweden and Luca Cordero di Montezemolo, Chairman of Ferrarri and was chaired by IHT Executive Editor Alison Smale and Andrew Ross Sorkin, the paper’s ‘Dealbook’ editor.

Mr. Samaras, in an an elegantly dialectical speech in perfect English, accepted that Greece had neglected competitiveness ( and a lot else) for decades and was now paying the price.

He suggested that Europe as a whole had been pursuing nominal GDP growth and re-distributing what we now know to be borrowing and debts for a long time.

Greece has lost 35% of its standard of living in the last few years but quitting the Euro and re-adopting the Drachma would lead to an additional 60% drop in living standards.

The Greek people do not like or want austerity but want a return to the Drachma even less.

Mr. Samaras outlined a long list of pieces of advice for leaders of countries facing crisis, the first of which was to tell the people the whole unvarnised truth.

Stressing national and European solidarity, hope, confidence and an emphasis on light at the end of the tunnel, he underlined the importance of leading by example and particularly the need for leaders and politicians to take drastic (early and exemplary) cuts themselves.

The Prime Minister was convinced that there was ‘no quick fix’ for countries in crisis and felt it was incumbent on leaders to inspire people to balance personal and national budgets not because of pressure from outside but because such behaviour is ‘virtuous’ in and of itself and a matter of national pride.

It was interesting that in over two hours of discussions and questions, most of which were optimistic about the future of the European Project and the Euro, the role of banks and the financial sector did not receive a lot of attention.

The participants and invitees expressed a high level of confidence in Mario Draghi and the ECB, a European Banking Union and the ”imminent’ recapitalisation of European banks by the ESM.

The Iraqi ambassador to France asked the panel to imagine what a similar gathering in China would be saying on this subject right now but nobody mentioned Ireland.


I’m going to guess that you are familiar with the thesis that appearance on the cover of Time Magazine is analogous to the discovery of newly installed fountains in the lobby of a corporate HQ.

There are probably newsbot algos looking for an opportunity to open naked Enda shorts as I type!

@Richard Fedigan

Ta for update. Amazing that Financialization, over-leveraged banking etc finessed this time in favour of competitiveness as a twin to the fiscal crisis …. but at least positive imho that Greek exit less voiced ….

Some Reality if perhaps not so lite reading:

The Endless Crisis
How Monopoly-Finance Capital Produces Stagnation and Upheaval from the USA to China

The days of boom and bubble are over, and the time has come to understand the long-term economic reality. Although the Great Recession officially ended in June 2009, hopes for a new phase of rapid economic expansion were quickly dashed. Instead, growth has been slow, unemployment has remained high, wages and benefits have seen little improvement, poverty has increased, and the trend toward more inequality of incomes and wealth has continued. It appears that the Great Recession has given way to a period of long-term anemic growth, which Foster and McChesney aptly term the Great Stagnation.

This incisive and timely book traces the origins of economic stagnation and explains what it means for a clear understanding of our current situation. The authors point out that increasing monopolization of the economy—when a handful of large firms dominate one or several industries—leads to an over-abundance of capital and too few profitable investment opportunities, with economic stagnation as the result. Absent powerful stimuli to investment, such as historic innovations like the automobile or major government spending, modern capitalist economies have become increasingly dependent on the financial sector to realize profits. And while financialization may have provided a temporary respite from stagnation, it is a solution that cannot last indefinitely, as instability in financial markets over the last half-decade has made clear.

The authors carefully develop a powerful case that the normal state of ‘really existing capitalist economies,’ increasingly dominated by multinational megacorporations along with associated financialization, is not growth with occasional recession, but rather stagnation with occasional escapes that have diminishing prospects. Hence an ‘endless crisis,’ endless in both time and space, including China. And a crisis that is heading towards disaster unless there is a radical change of course. This valuable inquiry should be carefully studied and pondered, and should be taken as an incentive to action.

—Noam Chomsky

In the distinguished tradition of Paul Baran and Paul Sweezy, Foster and McChesney here combine grim analysis with bleak prognosis, reminding us that monopoly power disappeared from the textbooks but not from real life. This is a useful book for anyone raised on the reflexive American optimism of the post-war years.

—James K. Galbraith, author, Inequality and Instability: A Study of the World Economy Just Before the Great Crisis

by John Bellamy Foster and Robert W. McChesney

You are confusing Time with the Economist. The last Irish cover was U2 c. The Joshua Tree and before that Lemass I believe. You would have been carried out on those trades. Also, Enda stock on here is priced at zero so I would not bother. Still judging by your posting on here I judge that you have taken the other side of the trade to Mikey. How that working for you.


You’ve reminded me of an educational experience in the days when I knew more about economics than markets. An analyst had sent round a sell note on a security, outlining the reasons why the market seemed to like it – and made a very clever argument as to why those reasons were flawed. We went through it and one of the old boys walked over to the dealers and thanked the analyst for his excellent piece of research on his way. He then handed a whopping buy slip to a dealer.


Or in my case, a sausage sandwich and cup of soup.

Times are hard and we’re all in this together and there is no alternative and this time it’s different….. and I expect the economy will take off like a rocket any time soon now ‘we’ have made the front cover of Time.

@ Grumpy

That article would be good were it not for the fact that Apple is now the largest company (by market cap) in history…


I don’t think I have ever found a broad technical (or fundamental) indicator that comes close to working on cue and all the time- so irrespective of U2 and Apple, don’t knock it too enthusiastically.

Once again, the Economist cover counter trade works better than Time.
There have been truck loads of sell notes on Enda and Ireland on here by the bloggers from the basement. Yet, if anything the valuation of both on international markets has gone up. The Irish 10 (9) year bond has, I believe doubled off the bottom and the ISEQ bottomed against the MSCI in late 2010. Enda’s Time cover is also evidence of increased respect.
Now, it all might be overbought, particularly if the FANGS resile from whatever deal they made in the Summer.
But if you have been short of Irish assets since late 2010, you should be fired for incompetance. Having no position is not quite so bad but you should be docked pay for missing an opportunity.

@ Tull

The mostly negative domestic reaction to the Kenny Time cover is classic Irish begrudgery. We seem to love wallowing in despair and martyrdom.

I never really believed in the begrdgery thing.
The Irish are, in my experience, very appreciative and supportive of well-earned succes by the talented and deserving.
‘Begrudgery’ is usually the spoilt cry of defense from people who are neither, like Craig Doyle, Brian Ormond, yer man from Westlife,…. and Enda.

As several have opined at this stage; How much did it cost ?

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