Social Exchange

Social Exchange

Wednesday, 8 February 2012

Chaos in Greece: One step away from selective default

Live from Athens

Chaotic discussions are taking place right now in Greece between the Greek government and the IMF officials trying to agree on the new austerity measures in order to avoid a catastrophic default.

According to Standard & Poors Greece will likely not achieve sustainable debt levels with a seventy percent reduction in the value of bonds held by its private creditors. So the ECB in conjunction with the IMF are putting pressure on the Greek government for the public sector to take further losses.

Private-sector bond holders currently account for only a small part of Greece’s creditors since most of the country’s debt has migrated to the hands of the European Central Bank and other official institutions

The S&P analyst Frank Gill said in a video conference this afternoon.

“In our original estimate, which was made two years ago, at that time debt-to-GDP would have been restored to a far more sustainable level,” Gill said.

“But because only a small subcomponent of investors are actually taking the haircut and the official sector is not, or only partially, then the reduction… is probably not sufficient debt relief to make debt sustainable given the outlook for GDP itself.”

S&P, which currently rates Greece at CC with a negative outlook, said it intends to downgrade the country to “selective default,” but just temporarily, while the government concludes its debt swap.

Shortly after that, Greece’s ratings should be upgraded to a “still low level,” which will depend on whether the country’s public debt is reduced to a sustainable position, Gill said.

The Greek political party leaders have been in long discussions trying rescue the Greek economy and avoid a selective default which will be catastrophic for the country. Chaos will be on the Greek streets again similar to the riots that we saw on the streets of Athens last night.

Most of the European broadcasting media have sent journalists into the streets of Athens to cover live 24/7 the discussions in the Greek parliament which has to lead to a positive vote before Sunday night in order to avoid a selective default.

Two euro zone monetary policy sources said today that European Central Bank advisers are still divided on what contribution the ECB could make to a restructuring of Greece’s sovereign debt.

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