Greece's Sisyphean Rollover Problem

by Richard Barley

Wall Street Journal
July 4, 2011

Nice try, but no dice. Standard & Poor's has ruled that a plan by French banks to roll over their exposure to Greek government debt would likely be considered a Greek default. That puts efforts to find a lasting solution to Greece's debt crisis back at square one. Europe's politicians may yet have to compromise and provide a bigger public-sector bailout for Greece.

S&P's judgment rests on two criteria. The first is whether a transaction is distressed. That has effectively been settled by the weeks of high-profile warnings from the ECB and politicians of the need to stave off near-term payment default; Any deal is clearly distressed.

The second looks at whether the rollover offers investors less value than their original securities promised. Since any new plan seems likely to involve long debt maturities and below-market rates given the problems Greece faces, it would also fall foul of this criterion.

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