S&P says Greek debt plan is a default after all
Posted on 05 July 2011 with 3 comments from readers
Last week a few votes in the Greek parliament momentarily seemed to have sent their debt crisis into financial history. But the whole can of worms has been reopened by an assertion by Standard & Poor’s that the deal now being proposed is already an ‘effective default’.
What is a default and what is not? It matters a lot to the European banks involved in assembling a ‘burden-sharing’ deal as the bailout is now described. They have to avoid anything that could be labelled a ‘credit event’.
The trouble as S&P points out is that the plan would constitute a Greek default because the exposure that banks would have to maintain to Athens involves extending the maturity of the country’s debt and restricting banks’ use of the bonds until their new maturity date.
Serious problem
The credit rating agencies position is more than a nuisance because the actual restructuring deal is far from done, and this effectively throws the negotiations into chaos. The rescue is not a done deal even if the Greek parliament has voted for it.
We are back to where we started with a country that has far more debt than it can ever hope to repay. What do you do with a nation whose railway staff are paid more than the revenue from ticket sales? Privatize the railway?
So will the risk trade be back on in financial markets this week? Well, as soon as the Independence Day hangovers wear off perhaps it will occur to traders that the Greek debt crisis is still unresolved and getting worse.
Hindsight
The mistake was ever allowing Greece into the European Union in the first place. Its economy and political culture was totally unsuitable and never properly reformed to fit into the system, and this is the result.
Greece is about to be in default and exit the euro and go back to being a sunny holiday camp for Europeans but not before it pushes the world economy over the cliff again. To think the place where democracy was born has come to this.
3 Comments posted by readers:
… if it smells like a default, then it is a default.
S & P are correct in their call. Their credibility would be in jeopardy should they succumb to the Machiavellian fumblings of Sarkozy, Brussels & co. who seek to call a rose by any other name … er, there’s that smell again
Greek privatisation will not succeed; e.g. check out the above point re railways salaries v. income. The unionised will never cooperate with any foreign buyer to accept redundancies + lower wages/benefits.
Any intelligent businessman recognises that such drastic measures would be essential to turn around what the greeks laughably call their economy to anything approaching Brussels’ wishful thinking.
Bottom Line? – ‘Lean & mean’ are concepts the lazy greeks wilfully refuse to embrace.
Even at 10 cents on the dollar, the risk of failure to an investor is too great. The only ones to succeed are the Chinese who, with Greek govt. support, have effectively and quietly ring-fenced/quarantined their investments at Piraeus away from anything remotely Greek. However, that solution won’t work with the railways – the greek morons will just lay down on the tracks or something equally non-constructive.
Would you surrender your bonus for turning up on time for work – not to mention washing your hands? Yes, such are but a few of the perks ‘earned’ by the tireless greek public servant who retires at 50.
Land Registry? No, despite the army of public servants, the greeks don’t have one. Lawyers’ heaven! Messrs Sue, Grabbitt & Runne will have a field day attempting to resolve issues pertaining to Title.
Endemic in Greek society is the culture of graft. Fakelaki …. as the Brookings study shows, Greek taxpayers lose equivalent of 8pc of GDP every year.
Nothing can change this except for a hard landing i.e. leaving the euro and being cut off from the credit markets. People will be forced to cut their cloth according to etc. etc.; once that painful cultural transition has completed and they have the books checked by anyone but Goldman Sachs, then the credit markets may consider them a credible borrower.
…. BUT, there remains the intractable problem of that iceberg of the CD’s …
… until that’s sorted, then whatever the presently lazy & corrupt greeks do will be irrelevant.
InfoPoint: icebergs generally show but 10% of their bulk above the waterline …
What really irks me is that S&P et al still exist….first they help get fat over issuing sub prime gold plated ratings..and now they can help derail a restrcuture by doing their job…make up your mind S&P ..you either know what you’re doing or you don’t///don’t try to have it both ways by trying to show some integrity nmd actually following accounting rules etc which you previously flouted…no doubt moodys etc will also jump onto the bandwagon! and a self perpetuating perfect strom shall ensue…….her we go again….
@ you dscartes..one smile deserves another..spot on assessment!..one ace the illlegitimates of goldsacks etc may hold is the ability to “collateralize” both obligation & asset..if they game any buyer, the commission alone dwarfs common decency..what do you think?..am i off the beam?