Monday, May 30

Why Greece Will Default Soon, and What Happens Next

As the haze and rhetoric surrounding the Greek debt crisis begins to lift we can now paint a pretty good picture of what's in store over the next few weeks for Europe's seemingly never-ending debt saga.

The June 29 Deadline

The FT describes the latest details and deadline in the Greek debt endgame:
...pressure is building to have a deal done within three weeks because of an IMF threat to withhold its portion of June’s €12bn bail-out payment unless Athens can show it can meet all its financing requirements for the next 12 months. 
Officials think Greece will be unable to return to the financial markets to raise money on its own in March – as originally planned in the current €110bn package – meaning that the IMF is now forbidden from distributing any additional cash. Without the IMF funds, eurozone governments would either be forced to fill the gap or Athens could default. 
To bring the IMF back in, the new deal must be reached by a scheduled meeting of EU finance ministers on June 20.
The hard deadline may in fact be June 29, when a 12 billion euro ($17bn; £10bn) payment is due to be made to Greece, of which 3.3 billion euros would come from the IMF.

Driving the IMF's credible tough stance are hard lessons learned (and apparently not forgotten) in Latin America a decade ago.


Remembering Argentina

Paul Blustein has written two very insightful and accessible books on recent sovereign defaults and IMF bailouts. His first, titled The Chastening, details the 1997-1998 Asian financial crisis. His follow-up focussed on the financial crisis which struck Argentina's shortly thereafter, and is titled And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina. Both books are available in in the Good Books and Films section on the right side of this blog.

Continue reading the full article at SeekingAlpha here.

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