The fallout from this weekend’s secret meeting to solve the Greek problem continues, but the deal isn’t likely to include any sort of harsh restructuring, according to Societe Generale.
The concern now is that allowing Greece to leave the eurozone, or conducting a restructuring of its debt, could result in destructive contagion to Ireland and Portugal. The ECB is against this, and has won this debate, according to Soc Gen.
Now Greece is either going to get more money directly from the eurozone bailout fund, or it’s going to buy up the country’s debt. This is likely to result in some political problems, but Societe Generale analysts believe it will still go through.
That doesn’t mean there won’t be any restructuring of Greek debt, however.
From Societe Generale:
The idea of a maturity extension is still floating around. Top of the list is further modification to the existing EU/IMF financial assistance programs, but this does little to help in 2012 as these programs are only due to be repaid from 2013 onwards. A Vienna-style initiative asking banks to maintain their current level of exposure to Greece (this thus ensures that any maturing debt held by banks is rolled-over) is also popular, but seems a more likely option if part of a bigger package also offering some reassurance to banks. A German proposal has also been made to extend the maturity of all Greek loans expiring in 2012. The ECB, EU Commission and France are not keen, however, fearing contagion.
Overall, this crisis looks like it’s going to be resolved like the last few.
But the problem with another temporary stopgap solution is still that it continues to treat the Greek problem as simply a liquidity crisis while failing to address Greece’s fundamental solvency problem. In short, the day of reckoning looks likely to be postponed again, even if it cannot be postponed indefinitely.