"We are trying to avoid a credit event."
Those eight frightening words were reportedly uttered by a German official as European leaders try to hash out a plan to guide Greece to a crash landing and somehow save the euro zone — and by extension the global economy — from serious ruin.
What's a credit event, you ask?
It's an explicit default that would trigger credit default swaps, those bondholder insurance policies that could provoke financial panic since no one is really sure who owns what, and who is exposed to which losses.
“The CDS market is not very transparent,” Jacques Cailloux, European economist at RBS told the Financial Times. “You don’t know where the exposures are.”
Here's how the Financial Times is reporting the latest political maneuverings, which appear to be a victory for the hard-line Germans:
European negotiators have asked Greek debt holders to accept a 60 per cent cut in the face value of their bonds, a hardline stance that far exceeds losses agreed in a deal between private investors and eurozone authorities three months ago.
The stance, delivered to a consortium of international banks at the weekend by Vittorio Grilli, Italian treasury chief and lead eurozone negotiator, is a victory for German-led northern creditor countries who have been pushing for Greek bondholders to accept far more of the burden for a second bail-out.
“You don’t need to be paranoid to be terrified,” a person familiar with the talks told the FT. “They need to find a fine line where they don’t create a credit event but where the effect is significant enough so the [Greek] debt is sustainable over the long term.”
Reuters is reporting continuing flare-ups ahead of tomorrow's scheduled meeting of European finance minters.
For more on the ongoing European debt crisis, check out GlobalPost Brussels correspondent Paul Ames' wrap-up of the weekend meetings.
And here's an excellent series from the Financial Times that lays out everything you wanted — and didn't want — to know about the crisis.
For more from Thomas Mucha on Twitter: Follow @thomaswmucha