European finance ministers are finally talking about a Greek debt default, something the market already sees as inevitable.
What they’re proposing is delaying the repayment schedule of Greek debt. Other terms used to describe this proposal are “reprofiling” and “soft restructuring.”
In exchange, Greece is to make more concessions in the form of “stepped-up sales of state assets and deeper spending cuts,” said Luxembourg Prime Minister Jean-Claude Juncker, reported Bloomberg.
This is possibly the best course of action for the Greek debt crisis that investors and the international community can hope for.
Default is already inevitable – the only thing that matters is how and when it happens.
If policy makers pre-empt and schedule it in an orderly setting, the damage is likely to be limited. Furthermore, it could be used as a bargaining chip to induce the Greek government to agree to more spending cuts and asset sales.
The alternatives are worse.
If policymakers do nothing, the market will eventually force Greece to default in a very disruptive way that jeopardizes the entire European financial community.
If they continue to bail out Greece with German and French money, German and French taxpayers will revolt at some point – and investors will fear that scenario every step of the way. The end result would be an even bigger default that may bring catastrophic consequences.
Fortunately, EU policy makers look poised to take the proactive approach, which is positive for the euro currency, Greek bonds, and the pockets of EU taxpayers.
Click here to follow the IBTIMES Global Markets page on Facebook