Everyone knows it’s going to happen, but nobody within the decision-making process can say it yet. I think the mood music though is perfectly clear.
I don’t necessarily have a problem with this. We should give the EZ the 2 years they want to get their ducks in a row, in that time let’s cut our deficit and then in 2013 let’s accept the debt restructuring. Not sure why that would be such a bad outcome.
The thing about a default is that once our officials start making noises about it, things will move very fast indeed. Also, when Ireland defaults first (or Greece, Portugal, etc) there will probably be a cascading effect as confidence collapses and investors pile out of the pool. The time line for default is very much months now, maybe even weeks. If the likes of Merkel and Sarkozy are unwilling to swallow their pride, we could be out of the Euro by Summer time.
Not on the online version but hopefully this will be enough proof
By Tom Stoukas
April 4 (Bloomberg) – The IMF is pushing for an early
restructuring of Greece’s debt amid concern that planned budget
reforms may be inadequate, Der Spiegel reported, without saying
how it obtained the information.
All the options under consideration would require
bondholders to accept lower interest rates, Der Spiegel
The EU’s Klaus Regling, head of the rescue fund for debt-
laden euro countries, told La Tribune in an interview that
Greece and Ireland have made great progress.
I have not the slightest problem with default, its been inevitable since late 2008, but I think most of those supporting default have not thought it through and will utterly horrified when they discover the outcome. Its not just a matter of stiffing the bondholder. There is a small matter of the government spending 60B when their income is only 30B and borrowing the difference. The IMF crisis last year was when that difference could no longer be borrowed on the capital markets. Default and the IMF/ECB will reduce future funding to a dribble and the government will have to cut nine years of increases in real government expenditure in a few months. So that 40% across the board cuts in public service wages and welfare payments and an end to most freebies for pensioner etc. Plus all but one bank shut down with another 30K out of a job (actually cheap at the price). Or else the money to cover government checks starts running out 10 to 12 weeks after default. This is what happened in South American countries when the government ran their countries financial system into the ground. Lots of examples over the last 150 years.
Just imagine the political anarchy as the comfortable and complacent middles class discover that yesterdays op-ed in the sindo talking about the middle classes in Argentina being forced to forage in bins to survive was not just rhetorical hyperbole.
This is now a very real possibility the longer the inevitable very substantial cuts in government expenditure is deferred. These cuts should have been made two years ago. The longer they are deferred the nastier the side effects. Of course once they are made it will uncover once and for all just what a fraud the official economic figures are. 25% of GDP consists of multi-national tax evasion and another 20% of the post 2002 numbers was ultimately money borrowed to puff up the numbers in the short term. People will have to adjust to the fact that after 40 years of massive capital inflow the country is not only not a rich country, but actually little richer than Portugal or Greece and now poorer (in real terms) than Slovenia and the Czech Republic.
I suspect it was read. And I found it very very interesting. Not your usual sententious op ed piece. I think it has finally sunk into at least one segment of the ruling class just where all this is leading. For the first time in the states history some very difficult decisions will have to be made (and soon). If they are not made then they will all get swept away to god knows where. There will be no T.K Whitaker this time around to act as a deus ex machina and give them a get out of jail card. Too late now.
It was the fact that the subject of Argentina was raised at all in a Sindo op ed piece that I found interesting. I’d not have been surprised if it had been raised in a SB Post or IT op-ed. But the Sindo? Now that is interesting. As was the line of argument used in the rest of the piece. I know it smacks a bit of Kremlinology but out of the ordinary op-eds in places like the Sindo usually do signify some tectonic movements behind the scenes. If nothing else, it think it indicates we are now entering the panic phase.