Will Greece default on EU Loan ?
JP Morgan reported today that Greece may need to roll over the 110 billion euro bailout package by the EU and IMF by three to six years to avoid a default on its debt. The plan announced by EU-IMF in May is scheduled to end in 2012.
Greece bonds have fallen after its government reported a budget deficit of 13.6% of GDP last year. It plans to cut its deficit to 8.1% this year and 7.6% in 2011.
Will Greece be able to meet its dues on time, and if it does not default, will it end up restructuring its debt ?
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Replies to This Discussion
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Permalink Reply by Ad Orientem on -
Greece was broke yesterday. Greece is broke today. And Greece will be broke tomorrow. I don't care how much lipstick people try and throw on this pig. They owe more money than they can repay. Period. Default is inevitable. The only question is when and in what form.
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Permalink Reply by Ivan Rybar on -
Yes they are broke, but no, they are not going to default. I think Germany is pretty clear about the fact that they are going to pay up for the Greeks. Yesterday, today, and tomorrow.
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Permalink Reply by Ad Orientem on
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Ivan,
You need to read the article (its a bit long) that I posted yesterday "Beware of Greeks Bearing Bonds." The short version though is that Greece is doomed because it is hamstrung by a hopelessly chaotic economy and a government that is plagued by a breathtaking level of incompetence and corruption which seems to be representative of the broader culture. In order for Greece to not default they are going to have make changes that go far beyond even the draconian austerity undertaken. And frankly I doubt that there is the necessary public support for it.
One of the major problems that is going to confront the major nation states in the coming sovereign debt crisis, is that most of them are democracies. This means that governments are in the end limited as to what they can do by the ballot box, especially if their proposals would involve unpopular measures likely to stretch out over the course of one or more election cycles. Germany is not going to bail out Greece forever for two important reasons. First, they can't afford it, and secondly the German public won't tolerate it. Point in fact I am curious (given our ultra short term election cycle of 2 years) as to just how Congress in the United States is going to be able to pass the necessary austerity measures (which will be severe) and tax increases (steep) to get our own exploding debt under control.
My guess is they won't until it has reached crisis proportions. I think some of the savvier big investors (Soros, Paulson, Einhorn etc.) are making the same bet based on their large stakes in gold and other inflation resistant assets like real estate and oil. They are students of history and know that the time honored means by which broke countries get unbroke, is to fire up the printing press.
Greece, not having its own printing press, can't do that.
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Permalink Reply by Maulik Mody on -
I think I will have to side with Ad on this one. Germany might be able to pay now, but that cant continue. The deficit is huge, and it might grow further. I see an inevitable default. Unless ofc, the EU and IMF agree to roll over the bailout package by a few years and the Greek economy bounces back somehow. In the absence of that, I think debt restructure will be a better option, but that in a way is a kind of default. It all comes down to the same thing - when ?
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Permalink Reply by Ivan Rybar on
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Well I have read the article and I've been to Greece and I understand that the country is chaotic and all that. I think it is clear that the Germans are bailing out their banks by bailing Greece out.
Plus Michalel Lewis writes how the Greeks dont even want to govern themselves. The pressure of German voters will result not in not bailing Greece out, but in putting some more German governance on Greece with the bailout package.
My theory would be that Germany can rule Greece via its own appointees in European institutions. No, they may not reform the whole system. But they could introduce significant changes by say pushing the government to sell railroads, ports, etc to German companies. And they can then run the economy better.
© 2012 Created by Maulik Mody.
