by Richard Barley
Wall Street Journal
May 2, 2011
Immovable object, meet irresistible force. Greek, euro-zone and International Monetary Fund officials insist a Greek debt restructuring isn't an option; some European Central Bank figures even warn it poses a Lehman-style systemic threat. They argue they have a plan to repair Greek finances.
Markets don't believe them. Greek credit-default-swap prices imply a 46% probability of a restructuring over the next two years, according to Deutsche Bank. Yields on Greek bonds maturing in 2013 have skyrocketed to well over 20%.
Those opposed to a restructuring have good arguments. Europe's banks are exposed to the debt and still need to recapitalize. It could cause problems for Ireland and Portugal, and reduce the incentive for needed structural overhauls. The orthodox thinking is that Europe will delay a restructuring until mid-2013, when the European Stability Mechanism, a facility for handling emergency financing and restructuring, comes into existence.
But that all assumes Greece will tap the market in 2012 for €26.7 billion ($39.5 billion) of medium- and long-term bonds. Based on market conditions today, investors won't provide the cash. If Europe stumps up more, it will just transfer more of the burden from private-sector creditors like banks, which made bad lending decisions, to taxpayers.
More
No comments:
Post a Comment