'Totally Ridiculous' Greece Should Default Big Or Go Home

Tyler Durden's picture

In what seems like the first honest words from a central banker in months (albeit an ex-central banker), Mario Blejer (who presided over the post-default Argentina in 2001) has some first-rate advice for G-Pap and his fellow Greeks. From an interview in Buenos Aires, Bloomberg notes the following notable quotes:

Greece should default, and default big, you can’t jump over a chasm in two steps.”

 

"Rescue programs backed by the International Monetary Fund and European Central Bank are “recession creating” efforts that will leave Greece saddled with more debt relative to the size of its economy in coming years and stifle growth"

 

“It’s totally ridiculous what is going on,” Blejer, 63, said. “If you assume that these countries do everything that is in the program, they do all these adjustments and privatizations, at the end of 2012 debt-to-GDP will be bigger than this year.”

 

It seems that once you retire and are free of the shackles of self-aggrandizement, the truth can flow freely and while he does not advocate Greece leaving the Euro-zone, his view is very clear.

Germany and France will have to bear the brunt of financing efforts to help Greece and other countries that default re-start their economies - "someone will have to pay, but if they are not willing to pay for the Euro they will have to get out of the Euro."

 

With longer-term GGBs already trading at EUR30, it seems the market views the world this way too. The GGB price term structure does not look so hot.

 

UPDATE: For some context on what occurred in Argentina - it seems long-dated GGBs are indeed priced for this and shorter-dated obviously priced for this plus some short-term carry:

When the default was declared in 2002, foreign investment fled the country, and capital flow towards Argentina ceased almost completely. The Argentine government met severe challenges trying to refinance the debt. The state had no spare money at the time, and the central bank's foreign currency reserves were almost depleted.

The Argentine government kept a firm stance, and finally got a deal in 2005 by which 76% of the defaulted bonds were exchanged by others, of a much lower nominal value (25–35% of the original) and at longer terms. In 2008, President Cristina Fernández de Kirchner announced she was studying a reopening of the 2005 swap to gain adhesion from the remaining 24% of the so-called "holdouts", and thereby fully exit the default with private investors.