What was interesting about this was the discussion of just how far the private sector debt holding had to be written down as a result of not including the public sector debt holdings in the restructuring.
Regular readers know that by adopting the Japanese model for how to handle a bank solvency led financial crisis, policy makers and financial regulators have allowed the private sector to socialize their losses by selling their Portugese bonds to the public sector.
Mohamed El-Erian, PIMCO’s chief executive, said Portugal will need a second rescue as the original package of €78bn (£65bn) falls short, setting off a political storm over EU rescue costs....
German finance minister Wolfgang Schäuble insists that Greece is a “completely unique case” and that there will be no further haircuts for banks, insurers and pension funds holding eurozone sovereign bonds.
However, the EU authorities broke their pledges so many times during the Greek saga that market faith has been shattered.
Even Norway’s sovereign wealth fund has expressed disgust, signalling that it will give Club Med debt a wide birth from now on. It has already sold half its Spanish bonds.
The fund, under Norway’s finance ministry, voted against the Greek debt deal on the grounds that European institutions were exempted from losses and given “special” treatment. “It's very important to create trust in the markets. To create trust you have to stick to the rules,” said director Yngve Slyngstad.If they have sold half of their Spanish bond exposure, how much of their Italian bond exposure have they sold?
If the Greek haircut formula is ultimately extended to Portugal, private creditors can expect to lose everything. The EU and the International Monetary Fund already own most of the debt, reducing everybody else to cannon fodder status.