Is a Greek debt default still inevitable?

The bailout will avert a euro zone breakup for now, but many worry it won't be enough to fix the nation's economy

Topics: GlobalPost, Greece, European Financial Crisis, European Union,

Is a Greek debt default still inevitable? A pedestrian passes outside a pawnshop in Athens, Tuesday, Feb. 21, 2012(Credit: AP Photo/Thanassis Stavrakis)

ATHENS, Greece — They contemplated a divorce but ended up having another baby.

Global Post

Greece and its euro zone partners saved their marriage by agreeing on a $170 billion bailout, but it hasn’t squashed talk of a messy breakup.

Some analysts see a Greek debt default as inevitable. Even Greece’s lenders fear the program is “accident prone,” as they said in a report for euro zone finance ministers before they approved Tuesday’s bailout.

It’s far from a universal opinion. Greek leaders lauded the agreement, naturally, saying it saved the country from a chaotic default. Others add that Greeks — despite the occasional violent protest against austerity measures — grudgingly accept that reforms are necessary.

Still, more of the same won’t cut it, said Costas Michalos, president of the Athens Chamber of Commerce and Industry.

“It’s a bad rescue package,” he said. “It’s not the right mixture of economic policies. If we follow the same economic policies of the past two years, there will be no other option than default, which I’m sure no one wants.”

The new loan package — Greece’s second massive bailout in as many years — aims to finally fix the country’s debt problems and restore its battered economy. It requires wage cuts and public sector layoffs, and strives to make the economy more competitive, which would attract investment.

A Eurogroup statement issued after the vote Tuesday in Brussels said the program is a “comprehensive blueprint” for debt sustainability by 2020 and economic growth. The success, it noted, “hinges critically on its thorough implementation by Greece,” no doubt a reminder of the country’s track record of missing reform targets.

“One can’t help but get the feeling that everyone involved is going through the motions, doing what they feel they have to do, rather than what they want to or what they believe in,” Sony Kapoor, managing director of Re-Define, a London-based think tank, said in a statement. “Confidence in the success of what has been agreed is rather low.”

Greece “will almost certainly” need yet another bailout, Kapoor added. “The troika have had to do some arithmetic gymnastics in order to make the numbers add up but their optimistic assumptions are unlikely to hold.”

Yet, for all their tough talk about cutting off the free-spending Greeks, the euro zone countries ultimately chose the safe route. The “comprehensive blueprint” helps Greece but also safeguards financial stability “in the euro area as a whole,” the Eurogroup statement said.

The new package hinges in part on private bondholders taking a nominal 53.5 percent loss, which will wipe out more than $140 billion from Greece’s overall debt. The IMF warned back in December that unless there’s near-universal voluntary participation by the bondholders, it would be hard to achieve debt sustainability by 2020.

Greece is expected to take extraordinary efforts to repay its creditors. It plans to amend its constitution to prioritize repayments. Also, the lower-valued bonds to be issued to private investors will be governed under English law. That provides stronger protections for investors.

Prime Minister Lucas Papademos has been criticized in some circles for conceding those guarantees, but University of Piraeus finance professor Dimitris Malliaropulos sees the other side.

“That, for me, is a guarantee that Greece will stay in the euro,” he said, adding that the commitment to the euro should improve investor sentiment.

Countries that default usually can devalue their currency, which makes exports cheaper, boosting growth. But with Greece ensuring euro repayments to lenders, there’s no incentive to default, Malliaropulos said.

“If you leave the euro, you should do it now — before the debt exchange,” he said.

The swap is scheduled to be complete in early March. If that and other conditions are met, Greece expects to receive bailout cash — avoiding default — before nearly $19 billion in bond repayments are due later in the month.

Petros Doukas, a former deputy finance minister, said he’s confident Greece will stay on course. He advocates for a larger debt write-off and a Marshall Plan-style spending package by the European Union and the United States — an idea he acknowledges is unlikely to occur.

The optimism, he said, stems from acceptance by politicians and average Greeks that there’s no turning back.

“Whoever thought that pensions and salaries could be reduced? It was unprecedented thinking,” Doukas said. “People complain about it, but they accept it.”

A potential curveball is an election planned in late April. Papademos is an unelected technocrat whose job is to shepherd Greece through the bond swap and bailout negotiations. He’s currently leading a coalition government that includes Greece’s two large parties, the conservative New Democracy and the Socialist PASOK.

Leaders of both parties have signaled their post-election commitment to carry out the reforms demanded by international lenders. Polls show New Democracy leading, but likely in another coalition government.

“The politics are a major risk for the Greek economy,” Malliaropulos said. He noted that Greece has had only a few coalition governments and “they didn’t go very well.”

More Related Stories

Featured Slide Shows

  • Share on Twitter
  • Share on Facebook
  • 1 of 11
  • Close
  • Fullscreen
  • Thumbnails
    Burger King Japan

    2014's fast food atrocities

    Burger King's black cheeseburger: Made with squid ink and bamboo charcoal, arguably a symbol of meat's destructive effect on the planet. Only available in Japan.

    Elite Daily/Twitter

    2014's fast food atrocities

    McDonald's Black Burger: Because the laws of competition say that once Burger King introduces a black cheeseburger, it's only a matter of time before McDonald's follows suit. You still don't have to eat it.


    2014's fast food atrocities

    Domino's Specialty Chicken: It's like regular pizza, except instead of a crust, there's fried chicken. The company's marketing officer calls it "one of the most creative, innovative menu items we have ever had” -- brain power put to good use.


    2014's fast food atrocities

    Arby's Meat Mountain: The viral off-menu product containing eight different types of meat that, on second read, was probably engineered by Arby's all along. Horrific, regardless.


    2014's fast food atrocities

    KFC'S ZINGER DOUBLE DOWN KING: A sandwich made by adding a burger patty to the infamous chicken-instead-of-buns creation can only be described using all caps. NO BUN ALL MEAT. Only available in South Korea.

    Taco Bell

    2014's fast food atrocities

    Taco Bell's Waffle Taco: It took two years for Taco Bell to develop this waffle folded in the shape of a taco, the stand-out star of its new breakfast menu.

    Michele Parente/Twitter

    2014's fast food atrocities

    Krispy Kreme Triple Cheeseburger: Only attendees at the San Diego County Fair were given the opportunity to taste the official version of this donut-hamburger-heart attack combo. The rest of America has reasonable odds of not dropping dead tomorrow.

    Taco Bell

    2014's fast food atrocities

    Taco Bell's Quesarito: A burrito wrapped in a quesadilla inside an enigma. Quarantined to one store in Oklahoma City.

    2014's fast food atrocities

    Boston Pizza's Pizza Cake: The people's choice winner of a Canadian pizza chain's contest whose real aim, we'd imagine, is to prove that there's no such thing as "too far." Currently in development.


    2014's fast food atrocities

    7-Eleven's Doritos Loaded: "For something decadent and artificial by design," wrote one impassioned reviewer, "it only tasted of the latter."

  • Recent Slide Shows



Comment Preview

Your name will appear as username ( settings | log out )

You may use these HTML tags and attributes: <a href=""> <b> <em> <strong> <i> <blockquote>