It gets worse. Yesterday, the discussions on the haircut were suspended (or collapsed, if you prefer). The Independent reports:
... the fate of ordinary Greek citizens also resides in the unsentimental clutches of private sector financiers. Germany, the biggest single contributor to the EU/IMF Greek bailout, began pushing hard last year for something called "private sector involvement" in the bailout. This meant that the holders of Greek bonds would write down the value of their investments. Germany did not like the idea of pumping ever more money into Greece merely so that the country could pay out those funds to private bondholders. In October, a 50 per cent bondholder "haircut" was announced. Eurozone leaders agreed the deal with the Institute of International Finance (IIF), the lobbying group of the global banking industry.But the IIF only really speaks for the large banks of the continent. A number of small hedge funds have also bought up cheap Greek bonds and are refusing to take a haircut on their investment. So now there is a stand off.
It is easy to blame the hedge funds, but they have to look after their own investors. And, as they have insured the Greek bonds they have purchased, a voluntary haircut would invalidate that insurance. You might as well blame others, as The Guardian did in this piece earlier in the week:
Before last summer, eurozone policy-makers swore blind that they would never countenance Greece failing to pay all of its debts in full. After finally accepting that that was impossible, they then asked if bankers would be good enough to knock 21% off the country's loans, rising over time to 40% and then 50%, or even a little more. Meanwhile, economists at the IMF estimate that Greece should actually have 75% wiped off its debt burden – and market prices indicate that figure should really be over 90%. But economic reality has been no match for the stranglehold bankers have on European politicians – who, by the way, swore last month that no other country would fail to pay its loans in full.
But regardless of where the fault lies, I cannot see any happy outcome.