Saturday, September 10, 2011
Tons of people are chattering about the possibility of a Greek default today, with Germany ready to bail out its banks if that happens.
There are two reasons that people are speculating on a Greek default this weekend.
First, private sector participation in the bailoutâ€”in which bondholders would have to accept about a 21 percent haircut voluntarilyâ€”is not going to be very popular.
Greece bank managers have said they expect private sector participation in the bond swap to reach about 80%. This is well short of the 90% Greece demanded last month. If Greece were actually to take a hard line on this, it would compromise an $185 billion piece of the bailout agreement.
This swap technically signals default anyway, so the failure to go through with it means we’d see a hard default rather than the managed, “selective” default outlined in the July 21 agreement.
The deadline for bondholders to declare interest in the plan is today.
Second, Greece could learn that it will not receive further aid funding from the ECB/EU/IMF “troika.”
- A d v e r t i s e m e n t
Superficially, this doesn’t seem like a huge deal. The aid funding at stake is $11 billion, small really in comparison to the size of Greek debt ($644 billion in 2010).
However, failure to receive this funding would signal that Greece is not meeting its debt and privatization goals, and jeopardize support for the bailout agreement announced on July 21. Parliaments and governments across the eurozone are deciding whether to move forward with that this month.
Policymakers aren’t supposed to meet again until September 14. In the meantime, Greece is examining its books. If it finds that its numbers will not pass muster, it could go ahead with default at any time.