This is hardly a radical notion, Mr. Bastian argues. Perhaps. But that also means that European taxpayers — particularly those in Germany — will have to absorb the full brunt of the haircut as *the I.M.F., by tradition, does not allow its debts to be restructured.*
"Because of our traditions, each of us knows who he is and what God expects him to do." On Fri, Jan 9, 2015 at 11:27 AM, Louis Proyect <[email protected]> wrote: > NY Times, Jan. 9 2015 > Voices Join Greek Left’s Call for a New Deal on Debt > By LANDON THOMAS JR. > > Many investors are worried that an election later this month may produce > a new radical government in Greece. > > Alexis Tsipras, the leader of an unruly band of left-of-center political > parties, is favored to win on Jan. 25. He has talked of restructuring > Greece’s debt and rolling back harsh austerity measures, and has raised > questions about the conduct and management of Greece’s sickly banks. > > All of which has come as a shock to investors, who over the last year > have piled into Greek bonds and banks, wagering that the country was > primed to recover from a five-year depression that wiped out a quarter > of the country’s gross domestic product. > > The concern now is that Mr. Tsipras, in challenging Europe on these > thorny issues, will force Greece into default and perhaps a messy exit > from the euro — an event that could unleash a new wave of investor > contagion. > > Some analysts, however, are advancing an alternate view: that a radical > new Greek government would not be that radical after all. > > Jens Bastian, a financial analyst based in Athens, notes that Mr. > Tsipras’s core argument — that Greece’s onerous debt is not sustainable > and should be reduced — has also been put forward by one of Greece’s > larger creditors: the International Monetary Fund. > > “It was the I.M.F. that kick-started the idea of restructuring Greece’s > debt with Europe,” Mr. Bastian said. “Mr. Tsipras can say we are in line > with the I.M.F. — we just want to talk to our European partners about > the debt.” > > This is hardly a radical notion, Mr. Bastian argues. > > Perhaps. But that also means that European taxpayers — particularly > those in Germany — will have to absorb the full brunt of the haircut as > the I.M.F., by tradition, does not allow its debts to be restructured. > > Greece’s official creditors in the eurozone hold 65 percent of the > country’s debt load of 317 billion euros. Private sector investors, > whose bonds were restructured in 2012, hold just 15 percent. These > investors range from mutual funds like Putnam Investments and Capital > Group, which own the restructured bonds, to vulture funds that did not > participate in the bond swap. > > The I.M.F. and the European Central Bank make up the rest. > > Yanis Varoufakis, an economist and adviser to Mr. Tsipras, says that a > Tsipras-led government would not make a private sector haircut a > priority — an outcome that many foreign investors now fear. > > Instead, Mr. Varoufakis proposes a grand bargain of sorts by which > Europe agrees to exchange its current obligations for new Greek bonds > that are linked directly to Greece’s economy. If the economy grows, as > it is expected to this year, bondholders receive a nice return; if it > does not, the bonds pay nothing. > > “We are turning Europe into a partner for growth as opposed to a partner > for austerity,” Mr. Varoufakis said in a recent interview. “This fiscal > waterboarding has to end.” > > Mr. Varoufakis is quick to add that such a plan does not signal a return > to the days of government profligacy, and he says that the government > will not suddenly abandon the many structural reforms Greece has put in > place to secure €226 billion, or $266 billion, in loans since 2010. > > An increasing number of economists have begun to argue that this > tremendous infusion of cash — 125 percent of Greece’s total economy — > has done little to help the country itself. According to an analysis by > Macropolis, a Greek news website, of this amount only 11 percent has > been directed toward the Greek state. A majority was used to bail out > Greece’s creditors and its banks. > > So Mr. Varoufakis is insistent in saying that what Greece — not to > mention broader Europe — needs now is a huge public spending program, > similar to the New Deal that helped lift the United States out of a > depression in the 1930s. > > And he has proposed using the European Investment Bank, which is owned > by European Union member states, as the lead investor in this respect. > > Persuading a divided Europe, hung up on balancing budgets and reducing > debt, to support such a notion borders on the fanciful. But the bond > swap, while no less ambitious in its complexity and scope, might at > least serve as a starting point for a conversation that debt experts say > can no longer be avoided. > > Greece’s debt, at 177 percent of G.D.P., is second only to Japan’s. And > while many of the maturities on these loans have been extended 20 years > into the future, so that Greece’s annual interest rate burden has become > fairly low, the overhang casts quite a pall, making it hard for the > country to secure cheap long-term loans. > > For such a swap to work, says Glenn Kim, an investment banker who > advises European governments on their debt strategies, two things need > to happen: The debt reduction for Greece has to be large enough to make > a difference and Germany has to be able to sell the deal to its taxpayers. > > “Someone has to take some pain somewhere,” Mr. Kim said. > > For skeptics, this is the rub. > > A growing number of hedge funds have started to establish short > positions in Greek government bonds, betting that their prices will > continue to fall. The view is that if European governments do agree to > take a loss on their Greek loans, public pressure will demand that > private sector bond investors share in the pain, even though their bonds > were restructured in 2012 and their share of the total debt is quite small. > > “I can’t see how the official sector will agree to a restructuring > without also getting the private sector to share the burden,” said David > Salanic of Tortus Capital, who is currently betting that the five-year > Greek bonds issued last year will experience a trimming of some sort. > > Mr. Salanic is not alone in his sentiments. > > Issued with yields of just under 5 percent, the bonds now carry an > interest rate of 12.5 percent; investors dumped them en masse once Mr. > Tsipras emerged as a potential Greek leader. > > A victory for Mr. Tsipras is not guaranteed. Recent polls show his 4 > percent lead over the governing party of Prime Minister Antonis Samaras > to be narrowing, as Mr. Samaras and European leaders have warned > ominously of Mr. Tsipras’s radical bent. > > “I am surprised to see these political interventions,” said Mr. Bastian, > the consultant based in Athens. “Because they really speak little to > what Mr. Tsipras has actually been saying since 2012.” > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l >
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