Thursday, July 21, 2011
Greek Default Envisioned
Sarkozy and Merkel held an all-nighter last night, and the upshot seems to be that a partial Greek default is no longer off the table. This implies that private banks will have to accept substantial losses on their holdings of Greek sovereign debt, and issuers of credit default swaps on the defaulting debt will be obliged to pay. Such a move will no doubt be accompanied by a Eurozone guarantee of future Greek borrowing, to ensure that Greece is not frozen out of credit markets. With such a guarantee, Greece might be able to borrow at lower rates, which would be a major step toward putting the country in a position where it might conceivably be able to pay off its debts without further austerity measures, which would strain the political system to the breaking point. So, this time--after a tenth European summit to deal with the Greek crisis--it might just work. But no numbers have yet been released, and arithmetic matters. And to date, the Euromeisters have not demonstrated much of a gift for arithmetic.