Greece Debt Swap Completion Provides Relief But No Plan
The strongest chain, goes the adage, is only as strong as its weakest link, and that has certainly proved to be the case with Greece and the EU. The latter has found itself repeatedly, in the last three years, held over a barrel as the former cooked its books, massaged its figures, missed agreed targets and held the fate of the Union and, at one stage, the global economy over a precipice.
The weakest link seems to have now got itself back on track, with a last minute deal with its creditors, exchanging bonds which would have paid out specific sums and high interest rates with new ones paying out less, at a much lower interest rate (the equivalent of a ‘hair-cut’ of up to 75%). The debt-swap, essentially seen by Credit Rating Agency Moody’s as a “controlled default”, triggered credit events which will result in insurance payouts for some of Greece’s creditors and a possible downgrading of the country’s already all-time low credit rating. It has also cleared the way for Greece to receive a much needed second bail-out from the EU, worth 130 billion Euros.
Yet Greece, no longer a danger to Europe, threatening to start a chain-reaction of national defaults which would have swept away Italy, Portugal, Spain and Ireland and effectively destroying the EU forever, is by no means out of the woods. With a long history of missed targets, missed deadlines and missed opportunities, a shrinking economy which is in its 5th year of recession and a government which is inexperienced in dealing with such events, the country becomes unlikely to be able to meet its 2015 target of owing just 120% of its GDP. So, why bother? Why bail it out, and have it go through the painful reforms of its austerity program, when it may still fail to recover in time and need yet another helping hand?Continued on the next page