Greece Defaults
Here is a time-line (from John Maudlin):
Consider that it took over two years from when a default seemed a so likely that it was being denied officially, to the time it actually occurred. Sometimes these things can take a while to unravel. Mostly, this was wasted time... but, that's how things play out on the political stage.
Defaulting on one's debt is not a good thing. However, there's a good reason for bankruptcy law: if a debtor simply cannot pay his bills, there comes a point where the best solution is to recognize reality. Similarly, it sometimes makes sense for a creditor to write off a portion of a country's debt, and agree on a lesser payment. Recognizing reality allows the debtor to work toward a realistic goal, and allows the creditor to stop banking on hope, and move on with a more realistic balance-sheet.
So, did this happen with Greek's default? Resoundingly, no. Before the default, Greek debt was selling for a few cents on the Euro. Greece restructured, and now each creditor who was previously owed 100 euro will be owed 50 euro, but this is still far more than the market realistically expects. The brand new Greek debt is already selling for 20 cents on the Euro. So, Greece has shifted from an unrealistic amount owed to a smaller, but still very unrealistic, amount owed. Hardly worth the effort.
This strikes me as extremely odd. I have to wonder why Germany would go through this charade. Commentator Mish Shedlock thinks Germany's end game is to push Greece out of the Euro, but it wants to give its own banks time to write off Greek debt. A lot of Europeans think that rolling back the Euro would be a step backward; so, they want to help Greece -- with tax-payer funds -- as much as they can.
From what one hears of Greek politics, there does not seem to be much chance they'll fix anything soon. Greece is in the middle of a deep depression, with 21% unemployment, 30% of Athens' shops shut, government salaries cut by 25% with plans to reduce some by 40% by 2014, and no end in sight. There's a fair chance this is just an early chapter in the morphing of the Euro-zone into a new political landscape in Europe.
And yet, one never can say for sure in human affairs. Time after time, countries that are spiraling downward with destructive policies do turn around. The Greeks may double-down on statism, or they may decide it is time they got their act together. Either way, we live in interesting times.
- 2009 Dec: European Central Bank (ECB) president says there is "no possibility" of a Greek default
- 2010 Jan: European monetary commissioner says there is "no Plan B" for Greece because it will not default
- 2010 Sep: Greek Finance minister says there will be no restructuring of debt
- 2012 Mar: Greek defaults on its debt, changing some laws with retroactive effect
Consider that it took over two years from when a default seemed a so likely that it was being denied officially, to the time it actually occurred. Sometimes these things can take a while to unravel. Mostly, this was wasted time... but, that's how things play out on the political stage.
Defaulting on one's debt is not a good thing. However, there's a good reason for bankruptcy law: if a debtor simply cannot pay his bills, there comes a point where the best solution is to recognize reality. Similarly, it sometimes makes sense for a creditor to write off a portion of a country's debt, and agree on a lesser payment. Recognizing reality allows the debtor to work toward a realistic goal, and allows the creditor to stop banking on hope, and move on with a more realistic balance-sheet.
So, did this happen with Greek's default? Resoundingly, no. Before the default, Greek debt was selling for a few cents on the Euro. Greece restructured, and now each creditor who was previously owed 100 euro will be owed 50 euro, but this is still far more than the market realistically expects. The brand new Greek debt is already selling for 20 cents on the Euro. So, Greece has shifted from an unrealistic amount owed to a smaller, but still very unrealistic, amount owed. Hardly worth the effort.
This strikes me as extremely odd. I have to wonder why Germany would go through this charade. Commentator Mish Shedlock thinks Germany's end game is to push Greece out of the Euro, but it wants to give its own banks time to write off Greek debt. A lot of Europeans think that rolling back the Euro would be a step backward; so, they want to help Greece -- with tax-payer funds -- as much as they can.
From what one hears of Greek politics, there does not seem to be much chance they'll fix anything soon. Greece is in the middle of a deep depression, with 21% unemployment, 30% of Athens' shops shut, government salaries cut by 25% with plans to reduce some by 40% by 2014, and no end in sight. There's a fair chance this is just an early chapter in the morphing of the Euro-zone into a new political landscape in Europe.
And yet, one never can say for sure in human affairs. Time after time, countries that are spiraling downward with destructive policies do turn around. The Greeks may double-down on statism, or they may decide it is time they got their act together. Either way, we live in interesting times.
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