Greece’s current financial situation is the main subject of a long and in depth analysis, published today by London’s Financial Times.
The report suggests that another Greek default will be announced within 2011. Some believe this will happen in the second quarter and others feel it will happen in the third quarter of next year.
Columnist Jonn Dizard states that:
“The Greeks and their advisers are already much further along in their thinking than euro officialdom. They realise that reaching a “successful” conclusion of the three-year adjustment process agreed with the euro leaders would be a disaster for their balance sheet. As Greek bonds mature over that period, they are paid off in large part with new borrowings from Europe and the IMF, as well as with Greek banks’ discounting bond purchases with the ECB.”
“That means Greece is exchanging outstanding debt that is legally and logistically easy to restructure on favourable terms with debt that is difficult or impossible to restructure. It is as if they were borrowing from a Mafia loan shark to repay an advance from their grandmother.”
“As has been noted publicly by sovereign debt lawyers such as Lee Buchheit of Cleary Gottlieb, the former counsel to Argentina, 90 per cent of outstanding Greek bonds are governed by Greek law. That means the terms of a restructuring could be set by the rapid passage of a law through the Greek parliament allowing for the application of aggregate collective action”.
“If a specific fraction for example, 80% or 90% of all Greek bondholders agree to a restructuring that lowers the net present value of Greek debt by half, then the remaining holdout bondholders would be forced into accepting the same terms.”
“In contrast, Greece’s advances from Eurozone countries, the IMF and the ECB are in effect, unrestructurable. Unlike Argentina which had a trade surplus at the time of its 2000-01 default, Greece needs continued financing and post-default for a trade deficit. That would not be available if it tries to stiff the IMF or ECB, let alone Germany and France. Think Zimbabwe.”