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Greek to declare bankruptcy as eurozone finance ministers split on bailout?

Posted on 19 February 2012 with 2 comments from readers

The meeting of eurozone finance ministers rescheduled for Monday is split over agreeing terms for a second Greek bailout and it seems unlikely that ministers will be able to agree the final settlement that markets are expecting.

Has the Greek can now been kicked so far down the road that it has reached the end? Any debtor will eventually throw in the towel if repayment is impossible and debts are spiralling higher.

No dice

A so-called ‘secret’ report from the European Commission, ECB and IMF has concluded that even if Greece makes good on its promises, and it has never done so to date, it will be impossible to bring total debt down to 120 per cent of GDP by 2020.

Officials are arguing that in these circumstances it makes sense for Greece to declare a national bankruptcy and begin negotiations for even bigger losses for its creditors. However, that is not usually how bankruptcy works: creditors normally lose everything or get minimal payouts after debts are wound up.

Could there be a Chapter 11 process for Greece? For a country that seems unable to agree or deliver on anything related to its finances this seems impractical to put it mildly.

The German cabinet is apparently split on Greece with the financial ministry not in favour of another bailout, and Austria and Finland are said to be implacably opposed. Monday really is the deadline as it will take at least a month to organize the deal in time to cover a bond payment on March 20th.

March 20th

If ever a credit event was more flagged in advance it is March 20th. Wall Street banks are known to be preparing for a credit event on that day.

What is becoming readily apparent to insiders is that Greece is a lose-lose situation. If a deal is done it is not only costly but doomed to failure and markets need to recalibrate for a future failure. If a deal is not done then financial markets face a very rough time.

In short the Greek crisis contagion cannot be avoided whatever the politicians decide and however much taxpayers money they decide to waste propping up Greece and the financial markets again. But agreement looks elusive and avoiding blame is more the aim of this game.

Posted on 19 February 2012 Categories: Banking & Finance, Bond Markets, Global Economics, Hedge Funds, US Dollar, US Stocks

2 Comments posted by readers:

Comment by TomTheMon - 20 February 2012

If this is true there is no solid foundation on which to invest in European bonds as they can change the rules whenever it suits:

Comment by Bill on Clearwood - 20 February 2012

They will get money transfer #2 in a couple of weeks, but will they get #3 when they need it in a year or two? Probably. The Greek economy is spiraling down FAST. Now that they can no longer make money from the East – West struggle, Cold War with the Russians, or global shipping dominance, Greece doesn’t have much of an economy. It will take a decade to make them competitive, if ever.
The rise of Asia, with cheaper labor, their adoption of modern technology, and strong work ethic, makes countries like Greece uncompetitive, as long as they are trapped in the euro. They ain’t Germany, baby.

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