The Grecian Winter of Discontent ends March 20

21 January 2012

The Grecian Winter of Discontent ends March 20

Greece must cajole or threaten its creditors to take a bath on their investments otherwise Greeks politicians won't qualify for largesse from the European Central Bank (ECB) or the International Monetary Fund (IMF).

The creditors are being asked (government is just asking, for now) to take less than 50 cents on the dollar. Naturally, the private investors are less than enthused. A messy default in March is a real prospect. No one knows what the resulting ripples tsunamis will leave of the EU after the default.

Greece has suffered through five-years of recession with no end in sight. It cannot pay its bills. It cannot make cuts deep enough to balance its budget. Not without imposing martial law.

The ECB has significant holdings but is not considered a private creditor and has said it is not involved in the negotiations, meaning it intends to collect 100% of the money the Greeks owe it.

Greece and the EU are between a rock and a hard place no matter what happens with the talks.

If Greece strikes a deal with creditors they will swap old Greek bonds for new ones worth half their original value. Greece saves $130 Billion and gets downgraded, forcing up credit costs on their new debt.

If Greece cannot strike a deal, it could force those resisting a deal to swap their bonds. Just change the law mid-stream! Ah, the joys of government.

That solution would spread to Portugal and possibly Ireland, sending those countries' bond yields higher. Much higher. If they can force a deal at 50%, they can force a deal at 10%!

Tuesday 20 March AD 2012 is doomsday. Nearly spring and a repayment of a $20 billion bond payment due. Chances of that payment being met are zero to none!

One way or the other, Greeks will be living in interesting times come spring. We should regard it as a classroom. A classroom where we will be learning our lessons soon enough.