July 2, 2010
More about sovereign debt default
For an over view of sovereign debt and defaults, see this simple primer at forbes.com
Much of the blog-level coverage of the Greek strikes takes the tone that the Greek unions are protesting and rioting against "reality," and that trying to legislate protection for the various perks of unionized public employment is essentially demanding a fairyland world not connected to an actual ability to pay for it all.
Many other countries have used sovereign default as a stepping stone to a better economic position (Russia) or have simply bought themselves more headaches (Argentina) and isolation from world investment money.
"Greece’s membership in the eurozone was also a principal cause of its current large budget deficit. Because Greece has not had its own currency for more than a decade, there has been no market signal to warn Greece that its debt was growing unacceptably large." From article by Martin Feldstein, Professor of Economics at Harvard, was Chairman of President Ronald Reagan's Council of Economic Advisors
Mark Gilbert in an op-ed at Bloomberg:
"There’s a terrifying chart on page 32 of the BIS report (Bank for International Settlements annual report). It suggests the average maturity of bank debt around the world has declined to about 4 1/2 years, down from a 30-year average of more than six years. And those are last year’s figures; the trend would suggest that refunding risks are probably even higher now.
The BIS, which acts as kind of a clearing house for central banking philosophy, reckons debt is coming due at the fastest pace in 30 years, and that 60 percent of what it calls “long- term debt flows” need repaying in the coming three years.
So Europe’s banks have transformed a one-year obligation of 442 billion euros into a three-month burden worth 132 billion euros. That should give pause for thought. "
This seems to indicate a sovereign default decision would happen quickly. In the case of Greece, it is expected by so many and denied so consistently by the Papandreou government and the European banks, no one will be surprised.
Could the coming mid-July T-bill issue of Papandreou test what happens next? If it fails, will that show there's essentially no long term avenue of escape for Greece? Or will they hang in there waiting for a more favorable set of conditions to try again to turnover more immediate debt to later dates?
Greece's Golden Visa program
