The fact that insurance contracts bought to protect a creditor involved in such negotiations have now been rendered useless says more about the nature of the our modern financial system than it does about the definition of a sovereign default.
Hence, we come to the real nature of this game.
The deal which now seems to be close to completed by no means closes proceedings. It is very likely in my opinion that private creditors who are currently the only ones being forced to take a haircut to seniority of the IMF and the ECB will face a near 100% loss on their holdings. The argument here is simple. Given the amount of debt held by the ECB and the IMF and the fact that these two institutions are senior debt holders the debt held by private creditors become something else than actual bonds. It becomes equity, i.e. the tranche which takes the first (and often complete) loss in the event of a default.
Of course, once we reach this point the issue of CDS contracts will rear its head yet again since if a 50-60% haircut can be considered voluntary anything beyond this becomes very difficult to characterize as such. Any rating agency would find it difficult not to classify further losses as a default and thus begins the fun in earnest. And then comes the ECB and IMF's share. It will be politically dynamite if the ECB had to print on the liability side to cover losses on the asset side on Greek sovereign debt (1).
Finally, Greece only represents the starter here. Any deal agreed on in Greece will be ardently watched in Ireland and Portugal who will feel they are entitled to the same deal with their private creditors.
Most tragedies have several acts, twists and turns. Investors should expect no less from the one currently being played out in the European sovereign debt markets.