The Economist (May 18th 2011) continues the presentation of subsequent acts of lasting Greek financial drama… Accordingly, there are supposed to be five options, although only the last one – “serious haircut on the value of the Greek debt” – seems to be a way out of the deep fiscal crisis. This is what I’ve suggested in my comment published in The Economist a month ago (http://www.economist.com/node/18679417?story_id=18679417). Now, The Economist calls it “hard” restructuring. Indeed, it must be hard, deep, and well managed. The sooner it’s acknowledged the better.
Moody’s rating agency cut its rating for Greece again. And, to be sure, not for the last time. It’s been downgraded significantly, by as many as three notches, to Caa1 from B1. There are only five more notches left to default. Following the Moody’s methodology, Caa1 implies that there is 50/50 chance to restructure or default on Greek debts in the next five years. According to my calculations, there is 100 percent chance, and it will be in months rather than years…
While Moody’s stance is on the safe side (there is 100 percent chance that one is right if one says that there is a 50/50 chance for something; how smart! isn’t it?), The Economist is developing the Greek drama a step further. It writes: “A year after Greece was bailed out by its euro-area partners and the IMF, even more help is being considered, given the impossibility of the Greek government raising money from the bond markets in 2012 as originally envisaged. Despite objections from the European Central Bank to any form of debt writedown, German politicians have been airing this idea as they face opposition from taxpayers at home to opening their wallets again. The terms used—“restructuring” or “reprofiling”—are fancy words for saying the money will not be paid back in full or on time.” (“The Greek debt crisis. Fingers on the trigger. How the credit-default market will judge a deal on Greece”, Jun 2nd 2011)
Let’s be clear: soft “reprofiling” or, better, hard “restructuring” would be superior for the taxpayers, for gains of which the German politicians seem to be very much concerned, than the ‘stay the course’ option. I bet 80/20 that they will come to such conclusion in a matter of the next five months.