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How Will Greece Default? Let Us Count The Ways
What was once anathema has become conventional wisdom, and lately the only question when discussing the fate of Greece is not if but when it will default. Actually, there is another question: how? Because as the following UBS flow chart shows, when it comes to the matter of picking an obligation on which to not make a payment, Greece has a truly 5 star menu selection.
Ths is what UBS says:
We do not believe that Greece will leave the euro in our base case scenario. However, were it to happen, we think it would probably do so via one of two main routes:
(1) The fast route: A rapid deposit withdrawal from the banking system, if the Eurosystem refused to finance it through expansion of the ELA facility. The government would then need to refinance (and probably recapitalise) the banking system by creating a new currency to do so. However, this could probably be slowed with the imposition of capital controls limiting deposit withdrawal.
(2) The slow(er) route: The government, running out of funds, could substitute IOUs for euros in some of its payments. Starting with payments to suppliers (including for pharmaceuticals, as in 2011), and then - in theory - progressing on to public sector salaries and pensions over time. As current Greek debt obligations are not valued at their face value by the bond market, nor would these notes be, meaning that their purchasing power would likely be lower than that of the euro. In this way, the parallel currency would already be devalued.
The more of these notes that were issued, the greater the need would be for the banking system to clear payments in them. The need would also increase for businesses and citizens to use them to pay taxes. As this continued, it would be likely that more euros would leak out of the Greek banking system and the economy would rely on the new currency to a greater extent.
Nominally, Greece could (in theory, and just conceivably) remain in the euro under these circumstances, but there would come a point in this process at which it had in a practical sense already left.
Below we look at the likely impact of impairment of some of the Greek government’s obligations, were any to take place.
IMF loans
The IMF has a “timetable of remedial measures” for overdue payments which we reproduce in the annex at the bottom of this note. As the cross-default clause in the bond documentation only refers to impairment of other securities, we doubt that non-payment to the IMF would accelerate bond repayments.
However, it is possible that non-payment to the IMF causes an acceleration of amounts due to the EFSF, which in turn could accelerate repayment of bonds if as would seem likely they were also left unpaid.
According to the “Master Financial Assistance Facility Agreement” between the EFSF and Greece, the EFSF may “declare the aggregate principal amount of any or all Financial Assistance made and outstanding… immediately due and payable, together with accrued interest” if (among other clauses) “the Beneficiary Member State does not make timely repurchases from the IMF in relation to the IMF Arrangement of any outstanding purchases… or has overdue charges on outstanding purchases”.
It is important to note that the EFSF also states that it “may, but is not obliged to, exercise its rights under this Clause”.
Were the EFSF to exercise this right, it is likely that bond repayments would also be accelerated. The documentation for the PSI bonds (those issued in exchange in the 2012 restructuring) cites as an event of default if amounts due to the EFSF “are declared to be due and payable prior to their scheduled maturity”. However, it should be noted that this clause does not appear in the prospectuses for the 2017 and 2019 bonds issued by the Greek government last year.
Government bonds and bills
The normal consequences of a failure to make a payment on a sovereign bond or bill are relatively well-known: the bonds enter into default and in due course CDS is triggered after a decision of the ISDA determinations committee. Additionally, in the case of non-payment on the “New Greek Bonds” (PSI bonds), the EFSF could decide to accelerate amounts due to it as with non-payment to the IMF (see above).
It is possible (though for a variety of reasons very unlikely) that an attempt is made to restructure privately-held bonds at some point in the near-medium term. However, no bonds have been issued to the private sector under Greek law since before the 2012 restructuring, meaning that any restructuring within the law would have to take place via investor votes as per collective action clauses. As the investor base is mostly composed of hedge funds and foreign asset managers, it is reasonable to infer that such a restructuring attempt would be unsuccessful.
Bilateral and EFSF loans
No interest or principal payments are due on the loans made in the first and second Greek aid programmes until 2020. As a result, and unless the Greek government were formally to repudiate its debt obligations under these programmes, impairment would seem unlikely.
* * *
So now that you know your options Greece, choose. And remember: your last check should always bounce, or at least be written in a currency that will soon no longer exist.
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So what? Germany defaulted twice in the 20th century, right? Defaulting is nothing. Let's see them try to do something really manly, such as leave the EU and then watch what happens. You can go into the EU but you cannot leave the EU!
What happened to the reparations discussion? How did that get buried?
Hey man, I forgive your Nazi garbage as a wash for your predatory EU, IMF rape. now go away. I have my own currency and can determine my future.
So fuck off.
How will Greece default?
By not paying?
Better default now before paying out every last cent and be forced to default later after all the money is gone.
What are the Germans going to do, roll the Panzer divisions.
Does anyone think they're going to keep loaning Greece endless money when they know full well they can never pay back any future loans much less the interest on those loans.
If possible Brussels will suck them dry like a Transylvannia vampire and then kick them to the curb like an old used up crack whore.
>>>
Does anyone think they're [Germany] going to keep loaning Greece endless money when they know full well they can never pay back any future loans much less the interest on those loans.
<<<
I do, while Merkel is in control.
The Greeks themselves _may_ take positive action to abandon the EUR, but if they do nothing?
Then every obligation coming due will be met, directly or indirectly, by Merkel using German taxpayer resources.
And, by know (yet another ELA increase today?) the Greeks realise this.
Merkel suffers from general German WW2 angst, made worse by growing up with DDR WW2 propaganda (of an extreme nature, to try to counter the failure of their own state in comparision to the global success story of West Germany).
She will spend without limit to preserve her dream of a 'United States of Europe'.
The Greeks will only take action if they feel sufficiently insulted that pride gets in front of good sense.
If they do nothing, more German money/credits will come...
Watson
The US also defaulted twice in the 20th century, and yet the dollar farce endures... I'm not sure I can live through 110 more years of Greek tragicomedy. Perhaps "they" should come up with a more "marketable" name and just get it over with.
Since I started freelancing I've been bringing in $90 bucks/h… I sit at home and i am doing my work from my laptop. Th? best thing is that i get more time to spent with my family and with my kids and in the same time i can earn enough to support them... You can do it too. Start here... www.globe-report.com
Greece has been in a perpetual default for over 3 years... I'm convinced that Greece, is the template for how the ECB and 'European Monetary Union' is going to unwind the Euro~Pact from 1999.
I think you're half right.
Suspect that Greece is the Template for the EU, should the Fed have to throw it under the bus to save itself... for a while longer.
Just throwing some frustrations around, Kirk. Greece, other than NATO strategic significance, is pretty menial...
Who knows? The Fed. lending that we know about has been reeled>>>In, or the ECB wouldn't be doing it's ponzi buyback.
The European corporate bond market is much different. (smaller) That plays a role in artificially low European sovereign yields.
We do not believe that Greece will leave the euro in our base case scenario.
Your
"We do not believe that Greece will leave the euro in our base case scenario"
Is the rumination of a complete moron.
Care to give us any other of your erudite wisdom?
Allow me to use my Decoder Ring: "It's over when we say it's over".
Greece is being raped and pillaged. Should they decide to resist, they will wreck and torch the place (via funded and manipulated groups), as a warning to others (Spain, Italy).
Greece is a failed state, modern culture, debtor, nation. 14 monthly payments for 12 months work; yeah.... that should work for only so long. They are learned credit users and abusers. The only one worse is Japan - but for different cultural reasons. The Greks are thieves to the bone. The Japs are deluded, insular, and stubborn to the bone. But the same result will entail for both. Neither has a way out - not because their creditors will help them, but because actually thier creditors are bleeding them dry - real dry. Failure for the majority of the citizens while a few greedy, selfish ones control the state for their own purposes, and allow the "markets" to suck and chew on them until all the juices are gone. History is replete with failed states - most for the same reasons as you see today - think France, Russia, USA. But these stories pale in significance to the true evil threat facing Western Civilization today - radical Muslims. Not since the 12 Century have we been under such seerious threat. We are busted financially, morally, and psychologically; and they gain strength every day. We are damn near leaderless, and controlled by the "political correctness" crowd = extreme blind liberalism - actually an outgrowth of extreme feminism - the ugly ones and the non-atheletes thrown out by their husbands and raising their children alone while dictating their version of momism. Just look at their offspring. Think they will fight and protect you from ISIS? Think again.
They peaked early; later on suffered 400 years of Ottoman rule and its been a fuckup ever since.
The conundrum facing the muslims is that to defeat the scientific/technical atheistic west they must become us. And then there is no conflict. America is an empire of culture and our culture dominates the way English culture dominated the 19th century. That's how we took over the world-one movie, music and internet at a time. Science and its methods can defeat any organized superstitition (i.e. religion) any day of the week and twice on Sundays (we don't waste time on Sundays looking into the cloulds and "praying" to the big guy). When Islam rejected science, they sealed their fate-devolution. And they've been devolving for the past 400 years. Next comes extinction. (Yeah, evolution is forbidden by the Koran, but its stilll the way nature works)
When and where have you been in Greece? And since the US lost every ground war since 1945 (except for Grenada) who can fight IS fighters I wonder?
I dont need to count any ways.
They will default by not paying.
However they do it it will be bullish equities.
Risk on bitchez!
Is Greece going to default?
There is an easier solution to this problem. Since all payments are electronic, there is no reason why the Greeks just can't start paying debt and interest to the Troika in Drachma. It is still legal tender in Greece. And "voila", problem solved.
Why are some comments getting up-voted when one is downvoting them??
...in as many ways as you can think of ?
greece has been in default for over five years. restructuring unpayable and increasing payments to unscrupulous bankers will never help greece itself.
print drachmas. take the hit, deglobalize. enjoy the sun the wine and fleecing the tourists.
.....
What we need now is the "Can-kicking Matrix", all the ways they can avoid default by feeding the Greek bank black holes with moar and moar fiat until the sun swallows the earth and all life (and banking) is extinguished.
Greece defeault? You must be joking guys. I bet Germany will default. Greece is No 1 Brand globally for vacations folks, - it is unbeatable ! Millions of tourists from all over the world are already flooding the Greek Islands. And the party has not yet even started. During the next 4 and a half months Greece is expecting 25.000.000 million tourists, that is 10% more than previous year. Perhaps the editor should stop reading where the banksters put their shit, and plan some good holiday in Myconos, or why not, honeymoon. At least Shadid and Mira got the message. Wishing them congratulations. Happy wedding ! Weclome to Greece ! LOL : http://www.ibtimes.co.in/shahid-kapoor-mira-rajput-have-destination-wedd...