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Bruegel Think Tank Says Greece Should Restructure Debt Now, Claims Country Is Insolvent And Further Lending Is Not Viable Strategy
It has been a while since we were reminded just how bankrupt Europe continues to be. And while the market has put European solvency issues on the backburner now that some CDO is about to purchase 5 times its weight in toxic sovereign debt (which somehow means everything can be swept under the rug for at least 2-3 months), a Belgian think tank reminds us again that the "Greece Question" is still as open and festering as always, no matter how many lies G-Pap throws at anyone gullible enough to still listen to him. Greek paper Kathimerini cites Belgian think tank Bruegel which "has recommended that Greece should restructure its public debt as soon as possible, and that this should be one of the main elements of a comprehensive response to the eurozone crisis to be agreed by European Union leaders when they meet next month. In a policy brief published on Monday, the Bruegel think tank argues that Greece is “clearly on the verge of insolvency” and that the swift restructuring of its debt, with creditors accepting a 30 percent “haircut,” should form part of a three-pronged strategy that includes the strengthening of the eurozone banking system and policies to foster greater growth in member states with weak economies. “Our conclusion therefore, is that Greece has become insolvent and that further lending without a significant enough debt reduction is not a viable strategy,” the think tank argues." Of course, should Greek proceed with the inevitable impairments, the domino effect will promptly take out marginal banks across the continent leading to precisely the toxic spiral which Ben Bernanke and his European colleagues have been trying hard to avoid.
More from Kathimerini:
The Greek government has consistently denied that it intends to restructure its debt but Bruegel’s most optimistic forecast indicates that with Greece’s debt-to-GDP ratio scheduled to reach 150 percent this year, an adjustment of “frightening magnitude” in the country’s growth rate and cost of borrowing would be needed to avoid restructuring.
“If you look at realistic scenarios and at history, then it’s very unlikely that Greece can avoid restructuring its debt,” Zsolt Darvas, one of the report’s co-authors, told Kathimerini English Edition. “It would be a very sad end to the first decade of the euro area but if something is not sustainable and you try to muddle through then the outcome could be worse for everyone involved, including the Greek government, the Greek people, Greek banks and creditors.
“So it would be preferable to have a solution that is still difficult but in which most players would benefit.”
The study suggests that even if Greece achieves a nominal growth rate of more than 4 percent of gross domestic product this decade and the interest rate spread of its government bonds against German Bunds fall to 350 basis points, would not be able to maintain the necessary budget surplus and could not therefore service its debt.
Greece is in negotiations to have the interest rate on the 110 billion euros it is borrowing from the EU and the International Monetary Fund reduced and the period it has to repay the money extended. But Darvas and his fellow economists argue that these measures “would be insufficient to return the country to solvency, since they would still leave it with an unrealistically high primary budget surplus requirement.”
Instead, they insist that the only way that Greece will be able to reduce its debt to a manageable level over the next 20 years is for investors to accept a 30 percent reduction on their returns from investing in Greek debt. Bruegel proposes that a decision for Greece to restructure its debt should be taken at the next EU leaders summit on March 24-25.
Germany and France have insisted that as part of a European Financial Stabilization Mechanism (EFSM), private investors should pick up part of the bill for any eurozone country being bailed out in the future by accepting a haircut on that government’s bonds. Darvas argued that this has created an inconsistency, which only puts more pressure on Greece to default.
“The current situation is clearly inconsistent because what you are saying is that from 2013, the new bonds will have a collective action clause which will make it easier to default on the new debt but at the same time you are saying there can be no default on the current debt,” he said.
“If Greece has government debt of 160 percent of GDP and somehow muddles through to 2013 insisting that there will be no restructuring of the existing debt, then who will buy the new Greek debt, which will have an easier option for defaulting? Nobody. Greece will not be able to go the market and will need a new [bailout] program or will have to default on the old part of the debt,” said Darvas.
Our only conclusion reading this report is that the Bruegel think tank is desperate for some bribes. Following prompt receipt of taxpayer "shut the hell up" funding, this latest splinter group will promptly flal back in line and start touting the party line that all is good and Greece, contrary to previous reality, is really very, very strong.
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KICK THE CAN!
Indeed. We have kicked the can down the road how many times, why would we not be able to kick it once more? Come now, "further lending" is always a viable option, just ask the U.S. Congress.
Replace the noun Greece with 'United States' and you see the situation our nation is in.
And in Greece it's NOT EVEN SNOWING!!
FACTOR THAT IN THE EQUATION!
Is debt restructuring the same as debt forgiveness?
Let's hear it for think tanks in ... Belgium!
Directly from the horse's mouth - front page has a download of Bruegel's plans for Greece and others:
http://www.bruegel.org/
Bruegel board members include Jim O'Neill of Goldman Sachs:
http://www.bruegel.org/about/board.html#c1184
Sudden Debt and bank guy in Brussels!
Keep the comments on Europe coming.
Egad, Tyler; ya gotta be feelin' like a mosquito in a nudist camp by now!
Haircuts now or scalping later....choose wisely.
spain must exit Eurozone now
Hot European babes are always welcome to immigrate. Just sayin.
Half, Eddie! I want what's comin-a-me....I'm American wo-man, Eddie!
http://www.youtube.com/watch?v=PnluciYGFXg
No way Greece needs default.
Even the golden state of california is holding on...
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/02/07/BAD91HJ22F.DTL
the FED will print enough money for everyone.
Remember: "There is enough for everyone!!" and of course recession has ended 2 years ago!!
Again READ IT YOURSELF:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/02/07/BAD91HJ22F.DTL
Well it's not like Fong didn't earn that money...I mean it's not like there's a murder every other night or anything.
remember---There is enough for everyone!
http://www.youtube.com/watch?v=ZbITxYgtlAY
The govinator says,' What the hell you waiting for? Do it! Do it now!!!'
http://www.youtube.com/watch?v=_wk-jT9rn-8
Head for the choppa if you want to live
No shit Sherlock!!! Agree!!!! kick the can....Any sovereign can hide their books, mark assets to any value, force creditors to restructure loans. It never has to give-up the store. Taxpayers and lien holders pay the freight charges...You have seen the deal, Greece,Ireland etc..etc...the euro is still strong...no one gives a rats ass
So Greece and Ireland are the exception that proves the rule? Stupid question but "what precisely defines a Sovreign"? The term "he who has the gold makes the rules" does come to mind.
China invests into EU. They are really going to dump the dollar.
http://dawnwires.com/investment-news/china-world-wide-investments-this-i...
They don't have the balls.
Right, those who wrote The Art of War thousands of years ago just dont have the balls to push around the fat arrogant kid on the block. Dont bet too much on it.
The best indicator of future action is past actions.
China cannot break out of the geographical boundaries the gods put on it ages ago. They have a large population because they screw like bunnies, but they will not dominate.
'The Gods' lulz.
I was going for the dramatic. The Chinese will fail as they always do when the stray beyond their borders.
All Confucius wanted was a government job.
Rodent, I agree re China.
History shows that they always screw up when on the verge of being the superpower.
LOTS of problems in China that do not get talked about much.
More noise to help the FED keep balance to the controlled implosion...
Should be good for at least 500 points on the Dow.. in the usual direction of course...
"Bruegel Think Tank Says Greece ....Is Insolvent"Being insolvent is why Greece needed a bailout.... is this a 'Think Tank' or they just trying to wind everyone up!!!
These peoblems keep recurring don't they? There is a massive vested interest in telling us the problems in the Pigs have gone. Then they come back again. However let us also not forget they are at this game with Portugal too.
http://t.co/Y3mozbG
http://historysquared.com/2011/02/04/recorded-future-sentiment-analysis-...
My Big Fat Greek Debt. They definitely, definitely restructure. Only question is can they do it without triggering CDS? Since restructuring is a given, I agree with the Belgian, they should do it now.
It's AMAZING that this question actually requires analysis.
Imagine a drunk laying in the gutter. The drunk is covered in his own puke, and hasn't taken a shower in weeks. Then imagine that the drunk has $500 thousand in debt.
There's no amount of "restructuring" that's going to get the drunk to pay his debt.
If he owes you money YOU ARE FUCKED. YOU ARE NOT GETTING PAID BACK.
Maybe they should have copyrighted euclidean geometery
Thats right, the debt cant be restructured because its impossible to ever pay it back no matter how many different angels you turn it. Same as the US, in fact a lot worse here in Disjointed States of Dementia.
had Greece gone long AAPL and NFLX...they'd be rollin in dough.
Well, at least on paper until they try to cash it in and there are no buyers until FAR lower.
Why not do what Ireland is doing? Just have your central bank create the money you need to pay your bonds.
Eurointelligence says the Irish Central Bank is 'loaning' those 51 billion euros it digitized into existance at a mere 3% to Ireland's banks. Doesn't Greece have a magic computer at its Central Bank capable of conjuring up Emergency Liquidity Assistance 3% loans?
we may see a little rally in the next 3 days .....
http://markettechnicals-jonak.blogspot.com/2011/02/hope-for-rally.html
There might be a rally in the next few days? You mean extending the daily hopium rally we've seen for 2 years? Wow thats really somethin.
Papandreou must go to jail
Those refusing a haircut now will be rewarded with a guillotine later on.
Again I have said Greece will take as much of your money that you will give them...then they will default...it was called stealing when I was raised...but then again my dad was not a banker....
And Greece's debt is nothing compared to US...who are they trying to fool here?
ny times can you kick a can before it is totally flattened out? When the music stops on this one, the contagion will be world-wide. No one here gets out alive.
If they..the politicians ..would have taken the hard knocks two years ago it would have been contained...but now everyone..I mean Western Countries ...is in the leaky life boat...we will all drown now...no one is coming out of this in better shape...
There's a prospect of haircuts on senior unsecured bank debt in Denmark, a possible precedent which has already been noted in Ireland.
Keep kicking the can, keep kicking the can. The problem is that like everything that is pushed off till tomorrow, it makes the problem exponentially more damaging. So what will happen is what's happening now, you have like in the US states going bankrupt, money printing, spending etc. etc.. If you would fix the problem early the other problems may not show up because the fix may have delayed or stopped another occuring problem on the horizion. But if you allow so many problems to come into being, you may have so many that fixing one may be the problem for another and vice versa. You get caught up into a intricate web of problems that can't be solved easily and without pain.