Greece gets Saved but its Nightmare is only Just Beginning

Current events in the parliament of a financially battered country seem to be reminiscent of a rabbit with a watch that is very very late for a very important date...

Inside - the Greek parliament scrambles to pass laws necessary to securing their second bailout payment. Outside - police have placed metal barricades in front of the building while confronting ongoing protests by extremely angry workers and pensioners. It's certainly not a pretty sight today in Greece. While many investors and other observers may have experienced some sort of closure to all of time spent hoping for some kind of an amicable conclusion to this second bailout and its requisite negotiations, there is still much to do for the heavily debt-laden country.

Credit ratings agency Fitch downgraded Greece further (from a CCC down to a C) ahead of the planned bond swap that is guaranteed to incur sharp losses for private creditors as part of the bailout program. And it only begins with Fitch; just about all of the other rating agencies will soon follow suit as Greece passes into technical default on its liabilities on or about March 12th. Per the terms agreed upon yesterday, private holders of over 200 billion euros of Greek bonds will be taking a 53.5% loss in the face value of their holdings to ease Athens' debt burden.

The legislation gives investors at least 10 days to consider the transaction and creates what are called "collective action clauses" (CACs) that will force all bondholders to proceed with the transaction once it has won a specified level of approval. Per the draft law, the swap will take place once a 50% quorum of bondholders have responded to the offer and the CACs will be activated once a two-thirds majority of that quorum have voted in favor of the swap.

Once this goes through, however, there is still much work to do for Greece. Of course the debt swap will be a necessary tool in lowering Greece's liabilities from 160% of gross domestic product to 120.5% by 2020, but there is still a 14.5-billion-euro debt repayment due on March 20 and elections slated for April.

According to Greece's Prime Minister, Lucas Papademos, "We have a lot of work to do from now until the end of March... If we finish our job in the next two months and if we then put in place the program successfully, we will overcome the crisis." Papademos also forecasts stable growth for Greece in 2014 and 2015.

Another interesting viewpoint on the matter that borders on the line of conspiracy theory is a shout by U.S. investor Jim Rogers, who told Reuters Insider television: "The Greek deal is a sham. It's designed to make everybody feel better. This Greece deal is only designed to get us through the French election and the American election and the German election." A bit extreme? Perhaps. But noteworthy nonetheless. While three separate elections are indeed arriving/ongoing, I cannot help but admit that it does feel a little like shoving a poor chap aside just to get closer in line to more pertinent albeit selfish issues.

On the brighter side of things, this complex deal actually buys time (and hope) to stabilize the 17-nation currency bloc and strengthens it against further financial damage from a Greek default. I suppose it can be viewed as somewhat of a good thing similar to applying a tourniquet out in the medical field. After controlling the bleeding that is Greece's technical default, the rest of Europe can survive longer and make it into inevitable but necessary life-saving surgery. The coming months will show how that surgery fares...

Ever so Watchful,

- Chris

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