Search Our Site

Custom Search

May 21, 2012

Greece Has Just Set a Dangerous Precedent

Greece decided out of nowhere last week to pay holdout bondholders 100% of their investment.  The holdouts accounted for $552 million worth of Greek debt.  Fox Business is the only site I've found to have covered this story.

The reason this is so important is because Greece has essentially paid 100% of the investment value on the bonds that investors refused to participate in the bond swap back in February.  This will likely infuriate the bondholders who chose to take a writedown as part of the second Greek bailout.

In addition to that, Greece used bailout funds to pay off this debt, a transaction that I'm not sure was approved by the agreed bailout.  The dangerous precedent has to do with future troubled countries (Spain, Portugal, Italy, etc) negotiating future debt writedowns.  Bondholders, seeing that holdouts recouped their investment with Greece, are more likely to holdout against future writedowns.  Future bailouts will undoubtedly run into difficulty thanks to Greece's decision.

Popular This Month