Who Owns The Greek Government Debt And Why Restructuring Is Not So Easy

With all the traditional and online financial press referring to the possibility of a Greek restructuring, it is crucial to have more information regarding the holders of the Greek debt.  Due to the EU/IMF bailout package of EUR 110bln, approved one year ago, and the direct bond purchase program by the ECB, the allocation of Greek debt has changed significantly. EU/IMF and ECB currently hold a significant proportion of Greek Government bonds (presented in detail at the table below), while last year they were missing from that table, as the burden of Greek debt was mainly on foreign banks and other institutional investors (about 70% of total Greek debt).

According to the Bank for International Settlements, the biggest potential losers from a possible haircut on Greek debt would still be the German non-quoted banks. As of Q4-2010, German and French banks have respectively 9,2% and 20% of their total peripheral Europe exposure tied to Greece.

Holders of Greek Government Bonds and debt, in billion EUR
Greek Banks 56
Other European Banks 50
ECB (direct holdings, nominal value) 50
Central Bank of Greece 10
Greek Social securities/other government 30
Other Investors 120
Total Government Bonds 260
+ EU/IMF loans already disbursed 53
Total debt 310

Source: BIS

Update: Check the table here for the top 40 holders of Greek debt (source: Barclays)

The sovereign debt problem in the Eurozone area is much more complicated than some people want to present it. Take a look at the chart below to see the great dependence in the system.



What we are missing from the above data is the amount of CDS or other hedging strategies, that the foreign holders of the Greek debt have used, in order to protect themselves, as well as ECB’s big exposure to Greece through its lending to Greek banks (check Tracy Alloway’s excellent article, citing JPMorgan’s estimates on the issue: http://ftalphaville.ft.com/blog/2011/05/09/563016/) .

Sovereign CDS market is an OTC market, meaning that there is not enough transparency. Consequently,  we do not have access to quality facts, ie which part of the traded amounts is invested for hedging purposes and which part is on naked CDS

Who owns Greek government bonds?

Greek Government Bond ownership by region

positions, effectively betting on a Greek default.


The record costs for insuring against a possible default of Greece, Ireland and Portugal is a clear indication of what the big players aim at, BUT it’s not clear yet if the decision makers in the EU are ready to satisfy them. In the sovereign CDS market the most common credit event, that can trigger the payment of the insurance, is the restructuring of the issuer’s debt, so there is an important incentive here.  During the last month, there have been rumors that EU authorities are looking for a way to avoid the CDS triggering in case of a Greek default, causing the reactions of traders using those instruments and hoping for a restructuring.

Although the decision on the restructuring is a mainly political issue, some people are already making fortunes from the Eurozone debt crisis.  The credit agencies’ decision to further downgrade Greece, is another way to push for a solution in the EU debt problem and possibly capitalize on naked CDS positions.

Investors need to be cautious when evaluating their portfolio objectives in that volatile environment. If it appears that CDS do not protect the holders of the underlying instrument, it will definitely hurt the validity of that market. The Greek debt crisis is part of a wider debt crisis in Eurozone and its progress will affect other markets as well. In the FX space, EURO has weakened suddenly towards USD and might return to the 1,35-1,40 territory again, where it will be a good level for going long on EUR.

It is urgent for The Greek government to act fast, so that to secure the best solution for the country: (as) the more they delay, the harder will be for them to negotiate on their terms. Since 2010, a big part of Greek debt is transferred from the hands of mainly German and French institutions to ECB and IMF, meaning that the political decision might come easier for them and it definitely won’t be in favor of the Greek people. Unfortunately, the progress on the structural reforms is extremely slow and the austerity measures are not enough to change the negative momentum. Greek government needs to take brave political decisions and restore trust, by solving decade-long problems like corruption, tax evasion and weak productivity in public sector. EU/IMF officials observe all these weak points and keep asking for more action. As a result, the markets keep asking for restructuring as they believe that all this debt is too much to handle.

I would be glad to hear your comments and feedback.

Check the following links in case you want to monitor the 5-yr CDS prices:

1. Greece: http://bloom.bg/cds5yGreece
2. Portugal: http://bloom.bg/cds5yPortugal
3. Ireland: http://bloom.bg/cds5yIreland
4. Argentina: http://bloom.bg/cds5yArgentina
5. Spain: http://bloom.bg/cds5ySpain

or alternatively you can visit this bulk link  http://bit.ly/CDS5yr

Update: Check the table here for the top 40 holders of Greek debt (source: Barclays)

13 thoughts on “Who Owns The Greek Government Debt And Why Restructuring Is Not So Easy

  1. Amazing and eye opening. I personally believe that the graphs, as always, present the truth.

    I strongly believe though that our fate will be the same as Lehman’s. Lehman was kept afloat apart from the fact that Hank Paulson was keep pressing Dick Fuld to recapitalize or find a buyer. But Fuld wasnt’ following suit. When the time came for Lehman, Paulson pulled the plug and Lehman was gone.

    In our case the ECB is holding, as far as the liquidity is concerned, our banks and in advance our economy. When the time comes, that ECB decides to pull the plug of liquidity then that will signal the same cataclysmic event. ECB is opposed to any restructuring but also is against to politicians that demand a restructuring. So go figure…

    • I don’t believe it will be so easy to pull the plug of liquidity, as there will be a domino effect in the European banking sector. The purpose of all this orchestrated pressure to Greece is to try to secure their investment (at least part of it) by taking over lucrative public assets at very low prices.
      The problem is that instead of trying to find solutions to boost the growth and competitiveness of our economy, we try to find ways to satisfy short term financing needs by taking “growth-damaging” austerity measures. The decade-long structural problems of Greek economy remain and prevent any serious recovery, mainly because there is a minority of people that benefit from that “inefficiencies” and they do whatever they can to stay “untouched”.

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  3. who is actually holding the debt always remains a secret, I cannot find any info on who actually individual or company

  4. Tony: That’s a good point! The fact that most of the transactions are Over-the-Counter (OTC) allows to all these holders to “hide” their exposures, and in the EU sovereign debt crisis no one really wants to reveal his position. Either because he might have to admit unrealized losses(that soon might become realized..) or because he is speculating/hedging through CDS etc.
    I’d suggest you check the following posts: the first by economist Kash Mansori: http://streetlightblog.blogspot.com/2011/06/indirect-us-exposure-to-euro-debt.html, where he gives some good insight on US exposure on euro debt and the 2nd by John Mauldin: http://seekingalpha.com/article/274465-time-to-get-outraged-by-the-banks where again he stresses the whole mess that has been created(again) by major banks.

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  6. Currently the intrest on greek government bond is 46 percent, what does it mean To the bailout funds which the government receiving?

  7. The current yield in the Greek bonds means that market participants do not expect a recovery anytime soon. No one actually believes that the actions taken so far by EU, IMF are improving the outlook on the Greek economy and actually more and more analysts worry for the possibility of contagion in EU.
    Regarding the bailout funds, it is clear that the whole mechanism is structured so that to help the main holders to move their Greek debt holdings under the hands of ECB/IMF (via the EFSF), so that to avoid direct effects of the upcoming haircut if not even worse situations.. Under the excuse of the bailout funds and the threat that the next installment will not be deposited, Greek government is passing stricter austerity measures, almost every week, but it does not really move on with the structural reforms needed to reset the economy and return to the path of growth.

    (FT has a nice tool to download past data for different types of securities: http://on.ft.com/marketsdata For government bond markets, I suggest to select “Bonds & Rates” from the 1st dropdown menu and from the 2nd “Benchmark Government Bonds” and lastly the date you want to see.)

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  10. The BIS source table for ‘Holders of Greek Government Bonds and debt, in billion EUR’ does not add up: The numbers above the bold 260 add up to 316 … Anything needed to subtracted or maybe noted differently?

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