Wall Street Journal
May 23, 2011
Have I got a deal for you. You can earn close to 25% on the bonds of a sovereign country that has the support of the entire euro zone. Of course, that country is Greece, again downgraded last week, this time to four notches below investment grade, and the support is not quite rock-solid now that German Chancellor Angela Merkel says she is through playing Lady Bountiful to an unreformed Greek economy, and also wants private investors to feel her taxpayers' pain. And although you will never be at risk of a default, you might be "repositioned," or "restructured" or asked to drop in for a voluntary haircut. There is the risk that you will be paid in drachmas rather than euros, but, hey, no investment is without a bit of risk.
Besides, think of the 200 basis point (20 percentage point) yield over those boring bunds.
Enough jocularity, or what passes for it from a Wall Street Journal scrivener. Last week saw real progress in reaching a solution to the Greek, Portuguese and Irish debt crises. It is now recognized that these countries can never, ever, repay their debts, certainly not on time, and more than likely not in full. A default by any other name is a default. It might doff its name, as Juliet thought Romeo might do, and choose "repositioning," or "soft restructuring," or "voluntarism," but it remains a default. If the renaming permits banks to continue the fiction that Greek paper is worth what is inscribed in their ledgers, so be it: sooner or later reality will catch up with them just as it has with the profligate governments now at the mercy of their euro-zone benefactors.
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