This is even more amusing

Europe\’s leaders are threatening to trigger a formal default on Greek debt and risk a “credit event” if banks refuse to accept losses of up to €140bn (£120bn) on their holdings.

Hardline eurozone members, backed by the International Monetary Fund (IMF), delivered the ultimatum this weekend after an official report found that in a worst-case scenario Greece could need a second bail-out of €450bn – twice the current package and more than the entire €440bn in the eurozone’s rescue fund.

Vittorio Grilli, a senior EU official, travelled to Rome yesterday to present the “take it or leave it” deal to the Institute of International Finance, which is leading the negotiations for the banks. “The only voluntary element for the banks now is to take a 50pc haircut or face a credit event, a default,” said an EU diplomat.

Thunder and lightning signifying nothing.

For this sort of deal rebounds upon the officials you see?

If all of the Greek debt were held by hte banks (or the wider private sector) then this would be a credible threat. But all of the debt isn\’t held by the private sector, not at all.

A very large portion of it, certainly the top holdings if not a majority of the debt, are held by public institutions. IMF, ECB, EFSF (if that\’s running yet) and so on.

Now, in a managed default it\’s possible for those public institutions to insist that they\’re at the head of the creditors queue. Governments can indeed insist on such things in negotiations after all.

But in an unmanaged one, a credit event, a full on default, they probably cannot. So push the privare sector too far, to take high losses while the public sector takes none, leaves the private sector saying \”well, go on then, default!\”.

All of this is made beautifully more complicated by the fact that most Greek bonds are issued under Greek law: and who in hell knows which way the courts there will rule on anything?

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