While Greece extended the deadline for completing the buyback until tomorrow, it was never in danger of failing. The Greek banks only tendered €10bn in bonds and are still holding €7bn. They will surely tender a portion of these holdings to unlock the next tranche of aid.
You see, the aid is meant for them. The lion’s share will be used to recapitalize these same banks. Of course, their recapitalizations needs have changed. The bonds are being carried at 100% of par value plus the value of the income stream from interest payments, but now the banks will only receive about one-third the principal and forgo future income. Now, the banks will require more capital.
The buyback wrangling is not the issue. Greece’s economy is in a free-fall, and it will probably need a 4th bailout before German elections. Europe will continue to be interesting next year.