What might a Greek default look like?

by Paul Mason

BBC News
September 14, 2011

If I borrow £1,000 from you and then, because of spectacular bad luck cannot pay it back, but I come to you and say, "here is £750, can we call it quits?" - that is a controlled default.

If I borrow £1,000 from you and you ring me up and you get directory inquiries in the Dominican Republic - that is an uncontrolled default.

Right now, Greece's fate hangs in the balance somewhere between these two. It has already received what economists called a "haircut". That is a voluntary agreement from its creditors to take 79 cents in the euro and extend the loans for up to 30 years. Ninety per cent have signed up to this.

Anything more than that should trigger a "credit event" allowing those who have insured themselves against losses on Greek debt to start calling in their money. That is what politicians fear will shoot the Greek debt issue like a sabot anti-tank round straight through the hull of the global economy.

The best example we have of an uncontrolled default is Argentina in 2001.

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