The Greek debt profile and why they are still being lent money

by on April 13, 2014 at 6:07 pm in Current Affairs, Economics | Permalink

From an excellent column by Wolfgang Münchau:

The reason Greece was able to attract so much interest in last week’s bond issue was a combination of the promise of a high yield and the maturity profile of existing Greek debt. Official loans – from eurozone member states and the International Monetary Fund – make up 80 per cent of the total debt. Greece will not start to repay this until 2023. In other words the country is solvent in the short run. But long-run solvency is far from certain.

The rest of the FT piece is here.  He suggests (without advocating it) that this could be the moment for Greece to default.

Doug April 13, 2014 at 6:11 pm

Greece-focused funds usually top the best performers for recent returns. Expecting the performance to continue is ridiculous, because they bought Greek securities at discounts that simply don’t exist anymore. Yet many investment flows are driven by uncritical performance chasing.

The Anti-Gnostic April 13, 2014 at 7:00 pm

Otherwise known as “kicking the can down the road.”

Rahul April 13, 2014 at 11:23 pm

In the long run we are all dead.

Adrian Ratnapala April 14, 2014 at 1:10 am

Keynes is dead anyway. Lots of other people aren’t dead yet.

Marian Kechlibar April 15, 2014 at 4:48 am

Keynes is dead. We are stuck in his “long run”.

Singularity9 April 14, 2014 at 4:54 am

In the long run we willl live forever.

prior_approval April 14, 2014 at 5:23 am

Well, for those unlucky enough to not follow the Noble Eightfold Path and thus be liberated from samsara.

JWatts April 14, 2014 at 12:30 pm

“Singularity9 -In the long run we willl live forever.”

Well sure, you say that, but what about those previous 8 singularities?

So Much For Subtlety April 13, 2014 at 7:20 pm

Otherwise known as “moral hazard”. Presumably people still think there is an excellent chance the Germans and the Dutch will pick up the final bill.

This is why the market for Argentinian bonds is less robust.

Yancey Ward April 14, 2014 at 11:20 am

Exactly. One need do no further analysis than this.

Donald Pretari April 13, 2014 at 10:13 pm

I don’t want to sound like a conspiracy nut, but, couldn’t this be a sort of bailout? The sale has been a long time coming, so, could a group of investors from various countries have gotten together to do this, knowing the risks but feeling, in the long run, it would be better, even economically speaking, to keep the EU together?

mulp April 14, 2014 at 1:04 am

Isn’t defaulting on debt the equivalent of taxing the rich?

It certainly is redistribution of wealth by government technocrats.

(bankruptcy judges et al…)

JWatts April 14, 2014 at 12:31 pm

Well usually a default is followed up by some rather high interest rates, a dysfunctional economy and other aspects that are pretty harmful to everyone involved.

JWatts April 14, 2014 at 12:37 pm

To be clear, I’m not arguing against a Greek default. But it’s not accurate to directly equate a default to a tax on the rich. Indeed, I suspect the wealthy Greeks would probably weather a default just fine.

genauer April 14, 2014 at 3:54 am

I really enjoy Tyler’s irony here: “excellent column by Wolfgang Münchau”

Greece doesnt have to pay offf any sizeable private debt.

Europe would just ignore any declaration of default.

Greece would loose the Euro subsidies for ever, because, the default would trigger an exit from the EU.

Münchau is probably not serious either.

“To lock in the competitive gain – to turn it into a real devaluation – would require a central bank with a credible inflation target and sufficiently deregulated labour and product markets. This is not a soft option, and would require a lot more structural reforms than Athens has so far undertaken.”

Yeah, what didnt happen in 5 years Troika cajoling will then happen as 5 miracles in a row.

Before that happens, PIGS can fly : – )

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