Business Insider
February 13, 2012
Markets are rallying in the wake of Greek parliamentary approval for a new round of austerity measures that would trim €325 million ($430 million) from the government's 2013 budget, reduce minimum wage by 20%, cut 15,000 public sector jobs, and draw down medical spending and benefits from pension funds.
However, the real hurdle is still ahead for the disbursement of Greece's second bailout—private sector involvement.
Negotiations between Greece and its private sector creditors have been going on for months now, with little progress to be shown for those endeavors. Deadlines for the deal and bond swap to be finalized have repeatedly been pushed back—most recently to sometime late this week.
The problem is not actually the deal itself; after a significant amount of brinkmanship, creditors and the government are likely to reach an agreement. It's the fact that representatives of the banking sector do not necessarily speak for all, or even a strong majority of, bondholders.
This wouldn't be a problem if EU leaders were willing to allow a credit event to occur and credit default swaps—insurance contracts on bond holdings—to be paid out. However, rightly or wrongly they appear intent on avoiding that, which means they're going to have to forcefully coerce bondholders to participate in a way that is still "voluntary."
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