Grilli Says Financial Markets Priced in Possible Trigger of Greek Swaps
“I think it’s in the market already,” Grilli said in an interview with Bloomberg Television in Rome today. “It is not that it will be taking anyone by surprise. So I think a lot of these events are already priced in.”
The Greek government said today it reached its target for the debt restructuring, with investors holding 95.7 percent of eligible bonds taking part. The government used collective action clauses to force the participation of some investors, a move that may trigger insurance payouts under rules governing credit-default swap contracts.
Grilli, who initiated the talks with Greek creditors on the swap last year when he served as head of the European Union’s Economic and Finance Committee, said it wasn’t certain the ISDA would rule that the swaps should pay out.
“We have been struggling to understand exactly what CACs imply for credit or non-credit events and I am not sure,” he said.
The exchange aims to reduce Greece’s total debt to 120.5 percent of gross domestic product by 2020 and was one of the conditions for a second EU-led bailout for Greece worth 130 billion euros ($172 billion). Euro-region finance chiefs are holding a phone call today to review whether the swap is successful enough to warrant proceeding with the new bailout.
Grilli, who hosted talks with creditors last year in Rome and Brussels, called the debt exchange “a long trip.”
“In the end, I think it’s been very successful,” he said.
The Greek swap won’t be used as a template to reduce the debt of other nations where fallout from the region’s fiscal crisis has boosted financing costs, Grilli said.
In the case of Italy, “I can tell you, no,” he said. “I think the strong message has always been that Greece is a case apart -- is a case of its own, and it’s no precedent for anything else.”
Grilli gave up his position as head of the Economic and Finance Committee on being appointed deputy finance minister when Mario Monti came to power in November. He has played a key role in advancing Monti’s overhaul of the Italian economy, which includes 20 billion euros of austerity measures to balance the budget next year.
The government has passed three legislative packages since November and is set to complete changes to labor-market rules this month. The administration is rushing to adopt and implement the measures before elections due next year, and Grilli said it was unlikely a new government would seek to undo the changes.
“The political parties knew that these were necessary things, but there was not sufficient bipartisan cooperation so this is the change,” he said. “This government has had a wide bipartisan support to put in place things that everyone knows were necessary and I don’t think whoever comes into power will have any incentive” to undo them.
Grilli said the government hasn’t abandoned its strategy of trying to lengthen the maturity of its outstanding debt, the second-biggest in Europe, by selling bonds with maturities of more than 10 years.
“Here we want to be tactical,” he said. “Our strategy has always been to lengthen our average maturity and duration but given the fragility of the markets, we don’t want to go against the wind. The strategic objective to keep our debt long is still there but we have to be tactical.”
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