When is a default not a default?

When it is a Greek debt restructuring deal! This is the largest bond swap in history with the majority of private investors such as banks and pension “voluntarily” accepting up to 74% haircuts worth around £90 billion in total. This slashes the Greek debt burden and triggers a further £110 billion in loans from the so called Troika (IMF, EU and ECB). The question is is this a default? The D word is feared by the markets, central bankers and politicians alike due to upstream losses and fears of contagion.
The answer lies with the controversial “Collective Action Clauses,” that the Greek government can impose on the miscreant bondholders who do not want to accept the write downs. Ratings agencies say if these are invoked Greece will be in default. Further ISDA, the International Swaps and Derivatives Association is due to decide if the credit event will trigger Credit Default Swap (CDS) payouts? You will recall these are insurances taken out by bondholders to cover default risk. By definition a claim on CDSs means default and losses for the CDS issuers and could trigger further sell offs in the bond markets although some argue these events are already priced into markets.
If successful this deal could be a key step in stabilising the EuroZone and the financial crisis in government debt together with the second tranche of easy money from the ECB. The focus may then shift to the fundamentals of the global economy. My feelings are that the debt crisis is not over yet and interesting times are ahead.
This post is not recent and some information is out of date