By James Saft
(Reuters) – If the Greek bailout has proved one thing it is this: we are now all creatures of government.
The rescue itself is only of passing interest – it won’t be the last and Greece’s virtual default will become real one of these days. Instead, it is the way in which the interests of private investors have been officially subordinated to public claims that will have a lasting impact.
Under the terms of the deal the European Central Bank and national central banks will be excused from taking any losses on their holdings of Greek debt. Private investors, in contrast, will take a loss of about 75 percent and are expected to be made subject to collective action clauses now wending their way through legislation in Greece. Those CACs will force investors to tender their bonds and take a hit, all while central banks skate serenely away. The ECB and national central banks will remit their profits on Greek bonds to the Greek government, a helpful gesture, but one which is cold comfort to an investor who now finds their interests subordinated.
“Of course, it is not in the politicians’ interests for the central banks to bear any losses as a result of lending to Greece and of course it is the politicians that set the legal and regulatory framework. Not only can politicians change the goalposts, they can change the ball you are playing with. Politicians, and the authorities, are exercising their imbedded power,” writes Richard Woolnough, a portfolio manager at British fund manager M&G Investments. here%C2%A0/#comments
Woolnough objects to the deal on the grounds that, besides sparing official creditors, it rewards the ‘locusts’ who bet against Greek debt but disproportionately punishes investors. The European Stability Mechanism, a sort of permanent bailout fund, is expected to also be awarded status senior to private investors.