Setting the stakes for Greece's bailout

The deadline for Greece's bailout is tomorrow. But if bondholders still hold out, more delays are on the horizon and the possibility of a Greek default remains. Here, people walk past the Bank of Greece headquarters in Athens on March 7, 2012.

Kai Ryssdal: There's a certain logistical beauty to the Greek debt crisis. Bondholders who own Greek debt have until tomorrow to agree to swap their devalued paper for slightly less devalued paper -- literally swap it. But as is probably old news by now, actually making that deadline might not be so easy -- thus raising again the possibility of a Greek default. Amazing as that might be.

To try to get some clarity we've got Stephen Beard on the line from London. Hello Stephen.

Stephen Beard: Hello Kai.

Ryssdal: So in the plainest possible terms, what in the heck is going on with this Greek story now?

Beard: Right, well we've got two parallel deals here. On the one hand, we had the European Union and the IMF agreeing to lend Greece $170 billion to stave off default. Remember that one? That's dependent on Greece cutting its budget and reforming its economy, but it's also dependent on Greece's private sector creditors taking a hit. And this is what we're talking about here. This is the other deal under the spotlight at the moment. Banks and hedge funds holding Greek government bonds have been asked to take a write-off of about 75 percent of the value of their bonds, and it seems quite a number of these private investors are digging in their heels and still saying, 'no.'

Ryssdal: I mean, 75 percent is a big loss to take, but it's that or nothing, right? Why would they be digging in their heels?

Beard: Well, they apparently believe they can screw a better deal out of the Greek government. There is, however, one theory that maybe these hold-out bondholders have bought a load of these so-called credit default swaps, these insurance policies that should pay out in full if Greece defaults. So maybe, the thinking is, these bondholders want Greece to default so they'll make more money out of it.

Ryssdal: All right, but wait a second: I thought this was sort of a voluntary swap, right?

Beard: Yes. It is voluntary if something like 90 percent of these bondholders agree. If significantly fewer than that agree, but more 75 percent, then the Greek government can force them to accept -- that will not be voluntary and that technically could be a default.

Ryssdal: All right, fair enough. So once we're past the numbers game, what finally winds up happening? I mean, I hate to even ask you this because I've asked this so many times: Are we finally now done with Greece?

Beard: Well, not entirely. This is still is on an knife edge, and there's a great deal at stake here. I mean, if this doesn't go through, the Greek government might not get that $170 billion bailout, and then it would default as early as March 20.

Ryssdal: But Stephen, here's the question that I'm going to get asked at the kids' soccer game this weekend -- people know I work at Marketplace, they're going to say, 'Well what do you make of the Greece news?' and I'm going to say 'Ooh, it's bad.' But they're going to say, 'Wait a minute -- in the States we're adding 216,000 jobs a month; consumer confidence is up; the economy is growing; yeah gas is a little bit high. But the apocalypse you guys have been talking about forever -- where is it?'

Beard: That's right. We got so used to this crisis, it's kind of a familiar friend. There has been this growing sense -- and particularly in some quarters in Germany -- that maybe a Greek default wouldn't be such a disaster. But there's still a huge amount of uncertainty about this. There still is a danger that this could still blow up, and potentially plunge the global economy back into recession.

Ryssdal: Always a joy, Stephen, always a joy to chat. Stephen Beard in London, thanks.

Beard: OK, Kai.

About the author

Stephen Beard is the European bureau chief and provides daily coverage of Europe’s business and economic developments for the entire Marketplace portfolio.

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