No longer an "if" - Greece has defaulted.

According to the Telegraph

The three big credit rating agencies - Fitch, Moody's and Standard & Poor's - downgraded Greece in July after the debt swap plan was unveiled, assigning it "highly speculative" status and warning that losses for private creditors would imply a default.

and

S&P said in July it would revise Greece's sovereign rating to "selective default" when any debt restructuring is implemented

The 50% discount is a loss to investors and the ratings agencies are viewing that loss as a consequence of a default. However, the International Swaps and Derivatives Association (ISDA) call the discount "voluntary" which therefore does not represent a credit event for credit default swap payment purposes according to its documents.

One would argue that this action by the ISDA negate the use of CDS as a hedge against widening spreads and ineffective as a protection against default.

According to Janet Tavakoli from Tavakoli Structured Finance

Banks that play this game call it “language arbitrage.” Anyone that bought sovereign credit protection on Greece after accepting ISDA “standard” documentation without modifying the language now finds that they are on the wrong side of an “arbitrage.” An arbitrage is a riskless money pump. In this case, it means that money has been pumped out of credit default protection buyers with no risk to their counterparties, the financial institutions that ostensibly sold them credit default protection on Greece.

 This strategy could create blowback

“If they find a way to avoid a trigger event in the CDS, then people will doubt the value of credit-default swaps in general, leading to more dislocations in the market,” said Pilar Gomez-Bravo, the senior adviser at Negentropy Capital in London

Greek Prime Minister George Papandreou said that speculators were making billions on betting on the "default"

Papandreou likened this practice to buying insurance on a neighbor’s house and then burning it down to collect. Without naming names, he said some US banks that were bailed out during the financial crisis are using naked swaps to make “a fortune out of Greece’s misfortune.’’