Greece: Grappling with the Unthinkable

Financial Times
March 7, 2011

A goal for the London football club Tottenham Hotspur at the weekend was described by a commentator as “almost unstoppable”. A similar oxymoron springs to mind concerning Greece. Monday’s three-notch downgrade of its sovereign credit rating by Moody’s Investors Service could be said to be “almost inevitable”. With its 2-year bonds trading to yield over 15 per cent, Greek sovereign debt is beyond junk. Investors think a restructuring by Athens is as good as done.

The question is whether they are right. Moody’s rationale for the rating action does not gloss over the likelihood of a Greek default. Greece’s debt burden is set to reach 150 per cent of gross domestic product; and it must refinance €211bn of debt between 2013 and 2015. The European Central Bank looks set to raise interest rates, adding to the mountainous targets the government must meet in return for its €110bn bail-out. The ingredients are there for a default.

More