Bloomberg reports on Sunday regarding an article in Der Spiegel Magazine that “Greece may fail to garner enough investors to participate in a voluntary write down of its debt, citing unnamed officials at the European Central Bank.”
This could be a big problem for the ongoing bailout saga as the next tranche of bailout money is tied to private investors “voluntarily” agreeing to a 70% haircut by March 8th at 3:00 P.M. Eastern time.
If this should fail, no one is quite sure what might happen regarding the “collective action clauses” and the triggering of credit default swaps on Greek sovereign debt.
This will be the largest debt restructuring/bond swap in history and the private investors need to sign off on this to move this whole process along.
Greece has said that 75% of the private investors must accept the “haircuts” in order for the deal to be voluntary and keep Greece from forcing investors to participate to close the deal. Should this not happen, the 130 billion Euro deal will likely collapse and should that occur, no one is quite sure what will happen next.
Europe ETFs likely to be volatile this week
Watch for volatile action in European ETFs and Euro Dollar.
iShares MSCI Germany Index ETF (NYSERCA:EWG) down 1.1% on Friday as the world looks to Europe’s “paymaster” for leadership to solve the ongoing crisis.
CurrencyShares Euro Trust (NYSEARCA:FXE) ETF tracks the Euro Dollar declined 0.77% on Friday, and in Sunday evening trading, March 4, 2012, the Euro Dollar is down to $1.318 while the U.S. Dollar gained.
iShares MSCI Spain Index (NYSEARCA:EWP) declined -1.05% on Friday as investors continue to worry about the long term solvency of the country as it faces recession and austerity at the same time.
Vanguard MSCI Europe ETF (NYSEARCA:VGK) dropped 1.24% on Friday and will likely face more pressure leading up to Thursday’s deadline.
Bottom line: Try as they might, European leaders cannot seem to make the Greek crisis go away and the hydra now threatens to grow yet another head. Even if the Greek beast is slain, Portugal and Spain lie just ahead.