George Soros has said that he thinks the Eurozone deal will only last a short time, from one day to three months.
Soros makes a number of telling points. The first being that for all the talk of the “50% haircuts” the actual level of Greek debt is only being cut by 20%. This is because it is only private sector holders of the Greek debt that are being asked to take the haircut. Given that so much of the debt is held by public sector organisations, the total cut in the debt level simply isn’t sufficient to deal with the problem.
Yes, as Soros says, the markets have bounced upon the announcement of the deal but this is because almost any deal, news of any deal, would be better than the vacuum and bumbling that preceded it. However, Greece is still insolvent and increased austerity simply isn’t going to make it solvent again.
The crisis simply is not solved.
He makes another intriguing point as well: the deal does not trigger CDS payments. But for some banks the CDS payment would be better than taking a 50% haircut. So it will be in those banks’ interests to not tender their debt for the haircut but to hold out and wait for a credit event. And the more banks that hold out the more likely a credit event becomes…..
Another way of putting this is that the Fat Lady hasn’t sung so it’s not over yet.
(source: The Telegraph, Forbes)
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