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Old 05-15-2011, 06:09 AM
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Mary Pat Campbell
Join Date: Nov 2003
Location: NY
Studying for duolingo and coursera
Favorite beer: Murphy's Irish Stout
Posts: 87,625
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As summer 2011 begins, many experts are not convinced that the "official," happily-ever-after version of the EU's debt crisis will play out. Even as European finance ministers weigh up whether Greece is meeting its current targets to receive the next tranche of the bailout package, there are a number of other "endgame scenarios" in which Greece restructures its debt either before or after the terms of the 110 billion euro rescue expire in June 2013.None are ideal, and "all come at a cost," said Lee C. Buchheit, a New York-based lawyer at Cleary Gottlieb Steen & Hamilton, who participated as a panelist with other banking and finance experts during a Wharton co-sponsored conference held at the European University Institute (EUI) in Florence, Italy. The event was titled, "Life in the Eurozone: With or Without Sovereign Default?"
According to Buchheit and other conference participants, any scenario that does not involve Greece defaulting looks less and less realistic. For one thing, Buchheit noted, if Greece hobbles to 2013 without restructuring, it can't expect to be embraced by the public markets as it once was -- back when investors "to their regret today, failed to conceive of any credit differences between Germany and Greece" and piled into Greek sovereign debt. Forecasters predict that Greece's public sector debt-to-GDP ratio in 2013 will be between 150% and 170%, compared with 143% at the end of 2010 -- which at the time was the highest in the EU and more than double the 60% ceiling EU members have agreed to maintain under the Maastricht Treaty.

In 2013, Buchheit said, more than half of that debt will be held by the so-called "official" sector -- the EU, the IMF and the European Central Bank (ECB), which has been buying big chunks of the eurozone's "peripheral" countries' debt on the secondary markets. The official sector will be able to claim "preferred creditor status" ahead of other creditors, Buchheit noted, leaving investors in private capital markets out in the cold should Greece's economy teeter again.

"So is it cheaper to have Greece default, or hand Greece the money?" asked panelist Arnoud Boot, corporate finance and financial markets professor at the University of Amsterdam. Ultimately, he added, "these are political questions" that have more to do with the wherewithal of Greece's politicians than with finance and economics.
t's a perplexing situation, said Calomiris. As more and more public money is poured into the bailouts, European officials refuse to entertain the thought of any of the 17 eurozone members leaving the currency union, despite the drag on the long-term competitiveness of individual members and the growing unhappiness of their citizens living under the constraints of the euro. "And you're doing all that because you really love this European idea," he said. "The change to the euro is first going to happen as a redenomination of the banks' liabilities. I predict the end of the eurozone as we know it."
Gotta love that suicide pact.

Here's the cute part:

Despite the challenges ahead, Gulati pointed out that Greece has a number of factors working in its favor that other financially distressed countries don't have. One of those factors involves Greece's debt contracts. As much as 90% of its debt has been issued under local law, with the rest falling under U.S., Swiss and a handful of other jurisdictions. And unlike most loan instruments in other countries, Greece's do not have what's known as "negative pledge clauses," which prevent the use of assets to secure other loans. "Their contracts are actually set up to do a restructuring," he said. Whether intentional or not at the time of bond issuance, "the Greeks negotiated for a lot of flexibility. It's almost as if they knew as soon as they joined the eurozone, there would be restructuring," he joked.
Ya think?

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