EU Plan Soft on Details

Nice piece by John Mauldin on the sketchy nature of last week's EU summit plan w.r.t. Greece. Long on hope, short on substance.

Two particularly salient points:

Guaranteeing 20% of a government bond is pointless. When sovereign debt goes south, it is usually for a whole lot more than 20%. Greece is starting at 50%.

Changing the CDS rules. Part of last week's accord was that Greek bondholders would agree to a 50% writedown. Because this was agreed to by the creditors, the contention is that this was not a formal default, thus it would not flip the 'credit event' switch on credit default swaps.

Those big banks who were short gobs of Greek sovereign CDS's thus got a big bailout.

Those long Greek sovereign CDSs basically learned that the rules governing CDS's could be changed midstream. If these folks were seeking to hedge Greek debt exposure or bet on a Greek default they have to a) find another vehicle, or b) no participate in this market.

As such, should it be at all surprising that we saw sovereign debt of other EU countries weaken over the past few days?

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