Outfoxing the Greeks
Eurozone and Greece
There are times when it pays to be hard-assed, get good legal advice – and never trust any government’s promises.
When Eurozone governments restructured Greece’s government debt a few months ago, they tried to force all private-sector investors to accept a big “haircut,” or loss of interest and capital, by exchanging their original bonds for new paper worth much less.
Despite enormous official pressure and threats that if they didn’t comply they would end up with nothing, a handful of investors refused to go along with the deal, mainly those who lent money using contracts wisely based on foreign (usually English) law, not Greek law.
The Greek parliament has unlimited power to scrap or forcibly change the terms of any contracts made under its laws, but cannot do that to contracts where the well-advised lenders originally insisted on terms set under foreign laws.
Now the “hold-outs” are benefiting from their stand. They are being paid out interest originally promised, and are recovering all their original capital as their contracts mature, without suffering any loss.
The Greek Debt Management Office has paid interest due on yen-denominated floating-rate notes owned by Japanese investors, and repaid in full the maturity value of a €436 million bond largely owned by speculators – using money newly-borrowed from Eurozone taxpayers!
Apparently Greece’s debt managers are paying out in such cases to avoid the risk of what commentator John Dizard describes as the “sheaf of bondholder lawsuits” that would otherwise “be launched all over the world, seeking to tie up any Greek assets or payment streams that show their face.”
CopyRight – OnTarget 2012 by Martin Spring
for more on Martin Spring see – TheBizSense Views – Views & Forecasting
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