About this time last year, we wrote, "to bail out or not to bail out that is the question", as Greece hovered over the abyss.
A year later, and with Greece now on the dole, "Bail out" has been replaced by "restructuring" but Greece is still close to the abyss.
The European media has been awash with rumours about plans for a Greek debt restructuring. This is no surprise at all, given that in a best-case scenario Greek public debt will "only" reach 150 percent of GDP in 2013, so something must be done.
According to other reports, a German government plan would see Greece buying back its own bonds using money from the EU's temporary bailout fund at preferential interest rates. The German government and all the usual suspects (led by the Commission) have denied the claim, so it's probably true.
So under such a scenario:
Greece borrows money on the markets by issuing bonds. When faced with reality - which is that it cannot find money for new loans to pay back the old loans because it doesn't have any real source of income (i.e. no tax base or competitive growth) - friendly neighbours lend money to Greece at better rates so it can pay back its creditors (mainly major financial institutions - these might face a haircut in future but not until 2013). Then, Greece would still be in debt but to European taxpayers, not financial institutions - taking moral hazard to a whole new level.
For any household, financing old debt with new debt, without the income to back it up, would be unacceptable. That's how the sub-prime crisis came about.
In the eurozone, this is now apparently called a "solution".
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