quick question about greek crisis
http://www.ft.com/cms/s/0/5b06f7f2-52ee-11df-813e-00144feab49a,dwp_uuid=2b8f1fea-e570-11de-81b4-00144feab49a.html
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The issue of debt restructuring or default continues to be a forbidden subject among finance ministers and the International Monetary Fund.
At recent IMF meetings in Washington, anyone remotely connected with the Greek rescue refused even to countenance the idea that they might be thinking about it – in private as well as in public. Speaking in Tokyo on Wednesday Herman Van Rompuy, president of the European Council, stressed that debt restructuring was “out of the question” while José Manuel Barroso, the European Commission president, said it was “not an option”.
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May be a daft question but what is debt restructuring? Is it like companies where they appoint an administrator and try to work out options instead of repayments? What's so bad about it? Why would ministers not even talk about the possibility at the moment?
Thanks!
I believe in this case debt restructuring could actually involve: renegotiating the rate, renegotiating the term, asking for forgiveness of debts, and/or defaulting on debts. This latter possibility is why no one will admit that restructuring is a possibility
Pretty much the same as a debt restructuring of a company struggling under its debt load, although debt for equity swaps may be difficult for countries! (not that anyone would want to own a piece of Greece anyway)
Likely scenario IMO is extending the maturity profile and a moratorium (or reduction) on interest payments for a year or so. A haircut is in my view less likely than the ratings agencies are intimating due to the havoc it would play on French and German banks (esp with the Krauts stalling already on the bailout). A default is unthinkable and would see Greece kicked out of the eurozone and end up with them turning into a third world country.
They don't want to talk about it because they're trying to tame speculation that would lead to a deepening of the contagion effect. Since a lot of Greece's debt is geld by other EuroZone guys, any restructuring would put their positions into serious doubt, whether this is warranted or not.
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