Photo: mikemol via Flickr
Yields are surging, and rumours are flying that a Greek debt restructuring is imminent, but there’s actually little reason to believe anything is going to happen anytime soon, according to Societe Generale’s Michala Marcussen and James Nixon.Greece doesn’t need to go back to the bond market until 2012, and at that point will be in need of €26.7 billion, according Marcussen and Nixon. And while Greece has been making cuts, it has seen little progress in terms of the broader IMF-EU agenda for the country’s reform, and with yields spiking, there’s no chance it can go back to the market.
That’s known. What isn’t is how it plays out next. What’s likely, according to Marcussen and Nixon, is that after months of dilly-dallying and debate, the EU caves in, and offers Greece some form of a second bailout.
By now it’s a well known routine. A sense of calm returns to markets, then there is some new trigger that brings the European debt crisis back to the forefront. The initial response from European leaders is denial. Then comes a flashpoint followed by a debate on solutions and European policymakers ultimately choosing the lesser evil on the solutions palette one minute before midnight. In our opinion, the “lesser evil” solution is that Greece will be given more financial assistance from the EU/IMF. A euro “Brady” bond or EFSF bond buybacks in the secondary market are also possibilities. Both would bring the euro bond closer to reality.
Importantly, midnight in this case isn’t until 2012. So don’t expect European officials to be whiling away their Easter weekends working out a solution to the debt crisis in Greece.
They also admit that a restructuring is possible, though far less likely than the Brady Bond or pure bailout options.
For those keeping score at home, here’s your crisis map (click for a larger version):
Photo: Societe Generale