Default

An interesting little tale reaches me.

When Greece did its 'restructuring' (which ordinary people call a default) it told private investors that they had to take a 75% hit on their holdings. These amounted to some €177 billion. However a small amount, we think around €6bn, was written not under Greek law but under English Law (the one used internationally for these instruments).

€450 million, a small amount in the context of things, of these 'foreign law bonds' became due today.

It is thought, but not known, that these bonds were held by the Norwegian Sovereign Wealth Fund,
Norges Bank Investment Management (NBIM). This outfit is worth $600 billion, and owns something like 2% of all the shares in Europe - ie pretty chunky. Now NBIM was annoyed at the Greek default, thinking the eurozone should look after its own affairs, and that it was disgraceful that the European Central Bank should remain immune from the default: the ECB, despite holding a lot of the paper, took no loss at all - everyone else paid for it.

So, it is rumoured, the NBIM said if it wasn't paid today, it would sue Greece in the London courts, which would have defaulted everything.

The Greeks have paid up. A Greek spokesman said it 'would not have any bearing on future decisions regarding other similar bonds'.

This is of course nonsense. The other €5.5 billion who have held out against the limited default - for most people it is a cardinal rule that you treat all similar creditors equally - now know they are in with a chance.

And every other investor knows that if the Eurozone pull this kind of stunt again they shouldn't go along with it.

And Mrs. Merkel knows that now if the ECB makes a socking great loss on a defaulting country's bonds, it is the Germans who are going to have to pay.

It's going to have a big impact, in my view.