Greece: a little more time is bought

Financial Times
June 3, 2011

Greece and the eurozone have bought themselves a little more time. Fraught talks with Athens’ international creditors over bail-out conditions ended on Friday with a “positive” conclusion. Like the various chunks of time that previous brinkmanship deals have bought, this period is likely to be wasted in foot-dragging (by the Greeks), finger-wagging (by Brussels), and exasperation (by the markets). But it gives investors what may be a final chance to consider the implications of Greece’s looming debt default.

Total Greek government debt outstanding is about €330bn, and is concentrated in relatively few hands. Barclays Capital estimates that 30 institutions hold two-thirds of the debt, of which (the figures are approximate) €40bn is held by the European Central Bank, €35bn by other central banks, €34bn by German and French commercial banks and €90bn by Greek domestic investors, including banks (National Bank of Greece, say, holds €12bn).

So a lot of financial institutions, some of them already not in great shape, would have to take a hit. How big? Since April 2010, Standard & Poor’s has been pencilling in a 50 to 70 per cent loss for bondholders in the event of a Greek default. BarCap puts the recovery rate for Greek bonds at 25 to 28 per cent of nominal value. That big.

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