AN EXCITING WEEKEND

...in Wien, that is. The Euros all got together over Schnapps und Schlag and decided that maybe a bit of a rescheduling for the Greek cousins might not be such a bad idea after all given the

1. howls that were certain to arise from the public if the bond holders and the banks got off scot free,
2. there was no way Greece could approach the capital markets in 2012,
3. the need was greater than expected and they didn't have enough money (Germany said no?), and
4. it can be structured to avoid the real losses that the banks are going to have to take, pushing those off to a better time in the future.

Now there are a few bumps in the road that have to be navigated before this gets done, not the least of which is the European Central Bank which is dead set against any such action and a bit of troublesome bank accounting rules but as has been pointed out on these pages in the past there are a lot of folks out there who know how to structure these things so that a good deal of this can be avoided.

What this is probably going to look like is an exchange offer whereby holders of Greek debt maturing over, say, the next 2 years will be ask to accept new bonds in exchange for the maturing ones for a medium term period (seven years was reported in the press) and with a lower coupon in some cases. Remember, a substantial portion of Greek debt has been effectively guaranteed by the EU so don't be surprised if any recalcitrant bondholders are told if they don't play, bye, bye the guarantee (warning notice---I am not terribly familiar with the full debt profile). The rating agencies are making ugly noises about their independence, Greece will be considered to have defaulted, blah, blah, blah. They will be told to go away and shut up and they will.

The central bank poses a more serious problem. It is independent, it truly is, but of course it can--and will--become subject to a enormous amount of political pressure not to treat the transaction as putting Greece into default for were it to do so ANY Greek paper would be ineligible for use at the Euro version of the discount window which would be a very bad thing for someone like Mrs. Landesbank's little boy, Westdeutsche. Fortunately, M. Trichet is retiring and his successor is an Italian. M. Trichet is a tough nut: Italians are lovers not fighters. You will get very short odds that the pols will wait until the changing of the guard is complete before parading this idea out into the sunlight. So Carter, if the reports are correct you may be off a bit in your timing, but the recognition of the reality of the day seems--finally--to be breaking through. Haven't heard what happened today but we'll be watching...and writing.