Even as investors grapple with the short-term economic impact of the European debt crisis, an important longer-term issue lingers in the background—the likelihood that Greece will have to restructure its debt...
While a restructuring may not take place for another year or two, it's a move that Greece may be unable to avoid, many say, despite assurances to the contrary from officials at the EU and IMF.
Restructuring is essentially a default, under which Greece would renegotiate its debt with bondholders, either lengthening its maturities or reducing the amount it owes, causing bondholders to take a loss...
The EU and IMF's bailout plan, which involves €80 billion ($99 billion) in loans from the 15 other euro-zone countries and 30 billion from the IMF, is designed to keep Greece afloat for a few years while the country enacts giant cuts and fiscal reforms...
One reason a near-term restructuring isn't likely, analysts say, is that much of Greece's debt remains in the hands of European banks and a restructuring could inflict sizable losses.
But because the European Central Bank has been aggressively buying up government debt, Greece will eventually have fewer private debtholders to persuade, making a later restructuring easier to engineer.
The basic problem is that even with aggressive fiscal belt tightening, the outlook for the Greek budget deficit is grim.
The Greek government had €273.4 billion in debt at the end of last year, equivalent to 115.1% of the country's gross domestic product. That ratio will rise sharply through 2012 toward 150% of GDP, since a yawning budget gap adds more to the tab each year. There are few signs that the stagnant Greek economy will grow anywhere near fast enough to catch up.
Friday, May 28, 2010
It's the Bailout of the Banksters Before Greece Is Taken Down
WSJ has a remarkably to the point story explainning why Greece will end up restructuring, but that there will be a delay until the banksters are protected:
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