Saturday, June 11, 2011

Greece Endgame, pt. 2

Dear Troika,

It seems that you're starting to agree with me: it's probably inevitable at this point. There will be some sort of restructuring (i.e. default) on Greek debt. It may be "voluntary" (Vienna-style) at first, but at best the voluntary-ness of it won't last past the present (June) agreement, so in a few months we'll be facing the same situation except with the "voluntary" option no longer on the table.

If you're a member of the "Troika" and you accept that, then it's time to change your goals. Perhaps until now you've been mainly working to try to avoid Greek default. (Though that has not been entirely clear.) And since the possibility of default grew and we began entering the endgame, it certainly seems like your objective shifted to trying to get a relatively good bargaining position for the negotiations about how default would happen. But now it's probably time to focus on something else.

That 'something else' is the precedent that you will be setting for Portugal and Ireland. They are carefully and critically watching your actions vis-à-vis Greece, and will take their cues from what you decide there -- as will investors around the world. In other words, while Greece is probably lost, the details of exactly how you decide to retreat will have a big impact on how investors and governments in Portugal and Ireland act. Time to move on to the next battle.

Put another way: if you do this right, the crisis could end here. If you do it wrong, you can multiply the crisis by three.

Yours sincerely,



  1. Anonymous1:39 PM

    Spain and Italy, as well. The next weakest links.

  2. Blankfiend12:31 AM

    Dear Kash,
    Exactly how would you suggest we structure a Greek default in order to avoid contagion for the other GIIPS?
    The Troika

  3. Ignacio4:18 AM

    Question 1:Will it just be a maturity change (german plan), or will restructuring include debt haircuts?
    Question 2: How much of the restructuried debt will be in creditor bank balance sheets? How much has been transferred to the ECB? Which banks transferred greek debt to the ECB?
    Question 3: What is the credibility of the ECB, if any?
    Question 4: Is anyone interested on a Lehman style panic? Why?

  4. Linus Huber4:19 AM

    I am not sure if there is a way to do this "right" as so much damage has been done already in terms of managing the matter against the populations of creditor and debtor nations. From the very beginning this problems started to appear, people of most nations were clearly in the camp of handing it to the creditors, meaning a haircut with the banks to suffer for it. The reason is obvious: despite that these banksters were saved with tax payer's money, they continue to extract insane bonuses as if nothing ever happened. They rather run everything into the ground then become reasonable in their behaviour.

  5. Linus Huber4:25 AM

    There is a way to do it right. It is the Iceland way. The debtor countries just have to find the courage to go it.