Wall Street Journal
September 23, 2011
In the continuing drama over whether Greece will get the next slice of rescue funds from its official creditors, another critical financial test has been temporarily forgotten: the country's plan to exchange old government bonds for new. As Greece's disputes with its lenders have intensified, the bond exchange has looked a better and better deal for investors.
The exchange, the terms of which could be announced next month, was the price of securing German government support for the second bailout of Greece in July. Germany did not want its bailout loans to be recycled straight into the hands of investors as Greece repaid maturing bonds, so it demanded some "private-sector involvement" in the rescue. Bondholders would be seen making sacrifices as well as German taxpayers.
For some analysts, the bond exchange that emerged was the worst of both worlds. On the one hand, it compelled banks and other investors to recognize that the value of their Greek bond holdings was impaired, forcing them to take write-downs. On the other, it yielded precious little benefit to Greece.
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