More than 3 years have passed since the Greek bond PSI. For those, who do not recall what happened, you can read “PSI lesson to investors”. I copy here just a relevant paragraph:
“The conduct of the PSI restructuring is very instructive for the lessons learnt and very destructive for the future of the bond market. Let me explain. Greece needed to restructure its debt. This is no secret. However, European politicians thought that it can be done “voluntarily”. In other words, they believed that they had enough political power over bondholders to convince them to take losses. When they realised that this was not the case they resorted to the good old argument “L'État, c'est moi” .
Many may have heard the story on how they found a so-called loophole in the Greek law. Greek bonds did not have any Collective Action Clauses and Greece could retrofit these in order to facilitate the restructuring. That is pure and utter baloney. The so-called retrofitted CACs were just a sleight of hand.
Greece in effect exercised its prerogative not to pay the creditors and Europe gave its blessing. The law that they passed (4050/2012) suspended contract law and made it a “Public Interest” and with “mandatory provisions”. Plainly speaking they could have done this even if CACs did exist in the Greek law bonds. They basically unilaterally changed the Bond contract claiming it was in the Public interest. They engaged article 9 of EU 593/2008 in order to suspend European legislation. If this sounds like a legal coup it is because it is a legal coup.”
Greek Bank Bonds
I am mentioning this because few days ago Piraeus and Alpha Bank of Greece (the other two would follow suit no doubt) made a “voluntary” offer to exchange their senior and subordinated bonds with (mostly) worthless equity and cash peanuts. The implicit threat here is the feared Bail-in. Eurogroup members have been outspoken with their views. They do not want to pay for bank recap. And the way to do it is to threaten implementation of a bail-in whereby equity holders and bondholders, maybe even depositors could shoulder some the burden.