Guardian
January 3, 2012
"The bailout agreement needs to be signed otherwise we will be out of the markets, out of the euro. The situation will be much worse." That was the unhappy new year message from the Greek government and probably should not be regarded as another attempt to coerce the voters into accepting deeper austerity measures. Rather, it sounded like a plea to private sector holders of Greece's bonds to please hurry up and accept 50% haircuts on their investments.
The so-called PSI (private sector involvement) deal was announced in October but still has not been agreed, despite frequent optimistic noises from Athens. This is fast becoming a serious headache, since the next bailout, which has to happen before a €14bn (£11.7bn) Greek bond matures at the end of March, will stall without it and Greece would indeed be on its way out of the euro.
The problem is twofold. First, some holders of Greek debt will prefer to decline the "voluntary" offer of a haircut and insist instead on being paid on time and in full. This is not an option available to mainstream eurozone banks, which must do as their governments ask, but there are plenty of hedge funds and others that would not care about being cast as freeriders.
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