22 July 2024: we have a deal!
Almost as soon as Zelensky’s visit in London concluded, the Government of Ukraine announced that a deal was reached with its main bondholders to restructure the country’s near-$20 billion worth of bonds, including a 37% reduction of the amounts owed. But this was only “an agreement, in principle,” reached with an “ad-hoc creditor committee,” and it wasn’t binding on all the bondholders. Instead, it imposed on Ukraine’s government “the Restructuring as soon as practicable,” to be implemented through a “consent solicitation.” In other words, Ukraine was expected to chase after its creditors and beg them to accept the deal, even offering them a 1.25% “consent fee.” Well, things were about to take a sharp turn for the worse…
24 July 2024: Ukraine strikes the Fitch iceberg
Only two days after Ukraine announced the deal with their bondholders, Fitch downgraded Ukraine’s credit rating from CC to C, reflecting extreme credit risk reserved for countries that “entered default or default-like process.” Significantly, Fitch made it explicit that “the publication of sovereign reviews is subject to restrictions and must take place according to a published schedule…”
31 July 2024: Zelensky ‘temporarily’ suspends debt repayments
Zelensky signed a law enabling Ukraine to suspend payments of external debts for two months (or longer).
Thursday, August 1 2024: debt repayments freeze takes effect
Bondholders’ grace period expires; Zelensky’s unilateral debt repayments freeze takes effect.
What’s peculiar about the British financial system is that the taxpayers are obliged to reimburse the Bank of England for any losses it sustains on its balance sheet assets. If the price of gilts on the bank’s balance sheet collapses, British taxpayers must cover those losses and make the bank whole. So, what kind of money are we talking about? As the the FT reported last July, the BOE has estimated it will require the Treasury to transfer a total of £150 billion by 2033 to cover expected losses on the central bank’s quantitative easing program.
So how much is £150 billion? Provided that things haven’t deteriorated since July 2023 (they have), we’re talking £2,240 per man, woman and child in Britain. Stand and deliver: that’s the ransom that the BOE is claiming from them! But given that the British workforce is only about half the population, and that private enterprise accounts for less than 55% of the British GDP, this sum represents nearly £10,000 per employee working in the private sector.
In all, the situation is impossible and all the cabinet reshuffles and cosmetic patches changed nothing of substance in the UK; they amounted to a sort of rearranging the deck-chairs on the Titanic as the ship is already sinking.
