Vittorio Grilli says that the markets have already priced in a possible trigger of Greek credit default swaps. Let’s hope he’s right.
I met today in Rome with Grilli, the deputy finance minister of Italy, who serves under prime minister (and finance minister) Mario Monti. He’s also the man who initiated the Greek debt-swap talks when he was head of the European Union’s Economic and Finance Committee. In his view, triggering bond insurance on Greek debt is unlikely to rattle financial markets.
“I hope not, but I think most of it is in the market already.” Grilli told me. “It is not taking anyone by surprise. It is already priced in.”
Grilli’s view fits with comments made today by Antonio Garcia Pascual of Barclays Capital (BCS), who told Maryam Nemazee on Bloomberg TV that the biggest risk from triggered credit default swaps is that an institution which wrote the insurance wouldn’t be able to honor its commitments, setting off a chain of events.
That’s not Garcia Pascaul’s expectation because “over the past three years counterparty risk management has improved considerably.”
Another issue here in Rome is the risk that Monti’s reform agenda will be derailed as elections draw near. Don’t worry, says Grilli.
“I think the political parties knew that these were necessary things, but there was not sufficient bipartisan cooperation, so this is the change. This government has had a wide bipartisan support to put in place things that everyone knows were necessary and I don’t think whoever comes into power will have any incentive” to undo them.
There was some levity during the interview. Grilli hadn’t heard Christine Lagarde’s advice to investors not to short Italy. He looked please to hear it, but said it wouldn’t be enough to prompt him quite yet to start issuing bonds with maturities beyond 10 years.
“Here we want to be tactical. Our strategy has always been to lengthen our average maturity and duration but given the fragility of the market, we don’t want to go against the wind.”
Here’s an excerpt of my interview with Grilli: