When he finally yielded a bit last summer, the euro zone negotiated a timid 21% loss in the lifetime of the bonds, for fear of triggering a "credit event".
If the debt's holders suffer losses in a bail-out, triggering a "credit event", banks that had sold the swaps would face huge payouts.
"If one investor had $1.1 million of debt and decided not to tender in an exchange, and the debt issuer stopped making payments on that debt, it would trigger a credit event," said Steven Kennedy, a representative for the I.S.D.A.
Accepting that a Greek default was now impossible to avoid, EU governments are hoping it will be brief and "selective", not triggering a "credit event" on the financial markets that could wreak havoc on the credit default swap markets, also in the US, and unleash contagion.
The emerging consensus within the German-led camp is that private investors have to take losses on Greece, which is then temporarily and briefly declared to be in default in the hope that this still does not trigger a "credit event" and turmoil on the credit default swap markets.
The economy remains the more significant threat — and the risk to him from the debt debate is that it could contribute either directly or indirectly to the economic slump, whether by triggering a credit downgrade, undermining consumer and business confidence, or simply by taking money out of the economy, which could sap G.D.P. in future quarters.
If ISDA does declare PDVSA in default, this would trigger a "credit event" under which credit default swaps (a form of insurance on corporate and sovereign debt) would pay out to investors.
Its privileged status caused other banks to employ its IOUs, rather than gold, as cash reserves and to ride side-saddle with it on its lending sprees until its own gold losses caused it to dump them, triggering a credit crunch.
For one thing, economists said, it could trigger a credit downgrade.
Fewer external credit lines available to banks could trigger a credit crunch in Latin America, coming on top of a decline in confidence and slower investment and, if the malaise spreads to Asia, falling commodity prices: a toxic mix for growth and stability.
