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Cutting the face value of Greek bonds by at least 50% as part of the solution to the debt crisis has caused a serious split between the Greek bankers and the Greek government. According to financial circles in Greece, George Papandreou's government aims to increase the responsibilities of the banking system in the crisis management to mask its own failures and the apparent inadequacy of the supervisory Troika of the International Monetary Fund, the European Central Bank and the European Commission. Bankers cannot forgive the Greek government’s failure of keeping its promise that there would be no debt haircut when the socialists in government have already been negotiating behind closed doors how to increase the involvement of private holders of Greek government bonds in the bailout, among which are private investment funds, banks, insurance companies and other investors.

In the spring of 2011, the Deputy Minister of Finance Filippos Sachianidis publicly trumpeted that the debt reduction would prove fatal to Greece and would isolate the country from the capital markets for a long period of time. Six months later, his claims were forgotten and the Greek banks are facing nationalization, because it will be the only way to be protected from bankruptcy after the 50% cut.

The Financial Stability Fund in Greece, which currently has a reserve of € 30 billion, could provide for the necessary liquidity to keep the banks "alive". The catch is that banks will become public and financing the real business will be almost impossible. Meanwhile, the Prime Minister George Papandreou has made populist calls to the financial system to give more serious financing to the companies at a time when bank stocks have already started to melt. This has left the impression in public that liquidity problems come from the financial system rather than the macro-economic situation of the country.

According to bankers, the government policy to the financial sector so far has sought to make the most Greek banks national and to present the process as a success, rather than prevent it and carry out the necessary reforms and cuts in the heavy public sector and bloated budget expenditures.

Another problem hanging like a Damocles sword over Greece is what the International Swaps and Derivatives Association (ISDA) will decide which will determine whether the huge haircut of Greek obligations will be determined as a credit event that will activate the CDS insurance of the Greek government bonds. The Association has stated that this would not be case if the process is voluntary, but no sound mind would accept that the financial institutions would voluntarily cut their right hand and write off a significant percentage of their portfolios for the sake Greece. The ultimatum to them either to give up half of what Greece has promised, or it would go bankrupt and they would lose everything, which defines the term "voluntary" as the lesser of two evils, is still in force.

However, advisers of several financial institutions that hold CDS have started a behind the scenes war with the lawyers of the International Swaps and Derivatives Association to prove that the Greek deal is a sufficient reason for bankruptcy and insurance on Greek government bonds should be disbursed.

From his office in the City, Gneral Counsel for Europe of the International Swaps and Derivatives Association David Geen stated that the procedure was clear. He explained that when anyone who had something to do with the CDS market were considered damaged, they should visit their website and make a proposal to the Determinations Committee. One of its members should formally accept the porpoasl and then the Commission would determine whether the proposed exchange of debt is a credit event. The Commission comprises 15 members and if 12 of them consider that the proposal was reasonable, a credit event would be declared. Then the results of votes are announced on the Internet and the CDS market is activated.

Geen said that many investors would not be satisfied with the 50% haircut and they would not involve  in the program. He stressed that if Greece would fail to pay the salaries of teachers and police officers that would be bad for the particular employees, but it would not cause a credit event. If the market for CDS is activated, however, this would entail serious consequences not only for Greece but for the financial system in Europe and even the world. Decreasing the face value of Greek government bonds by half requires some cobwebs. For that reason, the Institute of International Finance (IIF) has assumed to technically assist the process unlike the decisions of the summit in July, when the voluntary participation of banks was fixed at not more than 21%. Then, the assistants in the process were Deutsche Bank, BNP Paribas and HSBC.

The Deputy CEO of the International Swaps and Derivatives Association (ISDA), George Hadzhinikolaou stated that the debt haircut within 50% -60% was a familiar procedure, but it would be applied to the entire country for the first time. "The Determinations Committee of the International Swaps and Derivatives Association considers the contracts of the interested party because CDS are contracts subject to the British regulations and interpret the events as part of the arrangements." The decision of the International Swaps and Derivatives Agency is not related to the estimates of credit agencies. Credit event, said George Hadzhinikolaou, is purely a technical interpretation and it is not necessarily a failure, highlighted the financial expert.

It is important to note that whatever the definition of the CDS market activation, the consequences for Greece and the European financia