The next episode to the Greek debt drama will probably focus on the European leaders coming up with a bailout package that won't ruffle too many feathers in the world market.
Remember that one of the ECB's biggest concerns is avoiding a "credit event" that might cause unwelcome volatility in markets. In order to do this, euro zone officials must first coordinate with credit ratings agencies on what constitutes a "default."
In another part of the region, German Finance Minister Wolfgang Schäueble and his buddies are also hard at work at coming up with the moolah necessary to fund Greece's second bailout package. Since the ECB said that a forced debt rollover would trigger a credit event, they've been knocking on the French and German banks' doors to convince them to voluntarily rollover their debt exposures.
You have to hand it to Schäueble and his gang for they sure know how to bargain! You see, the French and German banks insisted that they use the French model (no, I'm not talking about high fashion) for private sector involvement.
In the proposal, banks would roll over around 70% of their Greek bonds due from July 2011 to June 2014 and keep the remaining 30%. They also have the option to reinvest their 70% in either new five-year Greek debt, or new 30-year securities with repayment guarantees.
In return for the deal, Schäueble and his friends are expecting around 3.2 billion EUR worth of Greek debt to be rolled over or extended. They might have to make other compromises to encourage more voluntary rollovers, but with France exposed to at least 57 billion EUR worth of Greek debt and Germany also exposed to at least 34 billion EUR, they certainly don't lack motivation to see the task through.
Right now it looks like the euro zone leaders had canceled their meeting tomorrow and instead scheduled a phone conference today to discuss the next financial aid payment for Greece and the structure of the second bailout package. If you ask me, they could probably accomplish things faster if they just met on Twitter, Facebook, or even Google +. Anyway, judging from EUR/USD's price action for the past couple of days, it seems that markets are getting more and more optimistic that Greece will avoid a default this time around.
We still have to remember though, that euro investors will never completely let their guards down especially when there's still a very possible threat that Greece might need a third bailout package, or that the other financially troubled euro zone economies (ehem, PIIGS) can still suffer from debt contagion.