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Migeru: Apparently the accepted way to run the public finances is to continuously roll over debt. This is what Minsky called speculative finance (borrowing to pay principal, paying interest out of revenue).

As you pointed out here, too.

Re: Upstate NY's response to your comment --

     Why not just extend the repayment terms?

     Surely, for the creditors, that's a better outcome than restructuring.

Münchau writes:

But even if the Greek government were to present a credible long-term stability plan, the risk of default would remain high. This means that some form of debt restructuring is unavoidable. Restructuring is a form of default, except that it is by agreement. It could imply a haircut - an agreed reduction in the value of the outstanding cashflows for bond holders. The Brady bonds of the late 1980s, named after Nicholas Brady, a former US Treasury secretary, worked on a similar principle. An alternative to restructuring would be a debt rescheduling, whereby short and medium-term debt is converted into long-term debt. This would push the significant debt rollover costs to well beyond the adjustment period.

One way to force the debate would be to attach super-senior status to the EU loan to Greece. I understand this is still an unresolved issue. Super-senior means this loan would be repaid before existing debt. Should Greece ever get into a liquidity squeeze, bondholders would be put in a back seat. In such a situation, they might prefer rescheduling.




The point is not to be right, but to get to right.
by marco on Mon Apr 19th, 2010 at 02:58:46 AM EST
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