This is why markets are terrified to hold Greek debt, despite the prospect of an imminent financial lifeline from the IMF.
Even assuming that this rescue is approved by Germany and the IMF, it looks like buying only a year’s relief.
That’s how long the eurozone and the IMF have to work out whether they are prepared for further bailouts, of Greece or of other members of the currency bloc yet to ask for help. George Papaconstantinou, the Greek Finance Minister, dismissed talk of default or restructuring of the debt this weekend, as did Germany’s deputy finance minister. But Greece still lacks a credible plan for repaying its €300 billion debt and bank analysts are speculating that holders of the debt may have to suffer a “haircut” of half of the value. For all the formal denials of restructuring, much legal effort is being devoted in private to trying to find terms of a voluntary restructuring that do not trigger default clauses.
This one-year-of-relief timeline makes sense, since even Greek 2-year bond yields are exploding. The prospect of a 50% haircut on your bonds is terrifying indeed.
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