And if so, what
are the chances that this effort, to milk Greece dry, will lead to the
collapse of the global economy?
Hedge funds
have long been known to use hardball tactics to make big money. Now they have come up with a new one:
suing Greece in a human rights court to force it to make good on its
bond payments! What are the implication
of this for the rest of us? Answer: they are not good, and here's why:
These hedge
funds plan to argue in the European Court of Human Rights that Greece has
violated bondholder rights. But that
could be a multiyear project with no guarantee of a payoff. And it would not be likely to produce
sympathy for these hedge funds --
which many blame for the lack of progress so far in the negotiations over 'restructuring'
Greece's debts (in this case cutting the amount of each of the debts by half).
Greece was
considering passing legislation to force all private bondholders (like hedge
funds) to take losses, yet exempting the European Central Bank, which is the
largest institutional holder of Greek bonds (about 50-billion-euros worth).
Legal
experts suggest that the hedge fund investors may have a good case against the
Greek government because if Greece changes
the terms of its bonds so that investors receive less than they are owed,
that can well be viewed as a property rights violation -- and in Europe,
property rights are human rights.
Problem is,
the bond 'restructuring' (halving the value of each of the bonds) is a requirement
for Greece to receive its latest bailout
from the international community. As
part of that 130-billion euro ($165.5 billion) rescue, Greece is in this way
expecting to cut its debt by 100 billion euros through 2014. It plans to do this by forcing its 'friendly'
banksters to accept a 50% loss on the substitute 'new' bonds that they would
receive in exchange for their old ones!
According to
one senior government official involved in the negotiations, Greece will
present an offer to creditors (including the hedge fund bond owners) this week
that features an interest rate (on the new bonds received, in exchange for the
old ones) that is less than the 4% that
creditors have been pushing for -- and those
creditors will be forced to accept it whether they like it or not. (No wonder the hedge funds are planning
on going to court in response!)
The surprise
collapse last week of these talks in Athens raised the prospect that Greece might not receive a crucial 30-billion
euro payment from the EU & IMF and might then miss a make-or-break 14.5-billion
euro bond payment on March 20 -- throwing the country into default and
jeopardizing its membership in the Eurozone.
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