Greece Defaults

[doodab]

What would be the difference between a Eurobond with the likes of Greece involved it, and all those toxic investments that caused the bank crisis?

Hard to say without knowing how the proposed eurobonds would work. Obviously if you had a federal government borrowing money and raising taxes that would be very different from the ECB selling CDOs.

[sasguru]

What would be the difference between a Eurobond with the likes of Greece involved it, and all those toxic investments that caused the bank crisis?

Not much I would say, you've got part of the bond which is quality (German debt) packaged with part that is crap (the PIIGS debt).
Or another way of looking at it is that you're buying German debt and assuming Germany can and will support the PIIGS long term.
Certainly I would imagine the EuroBond wouldn't be seen as rock solid as the current German Bund.

[doodab]

Not much I would say, you've got part of the bond which is quality (German debt) packaged with part that is crap (the PIIGS debt).
Or another way of looking at it is that you're buying German debt and assuming Germany can and will support the PIIGS long term.
Certainly I would imagine the EuroBond wouldn't be seen as rock solid as the current German Bund.

Or it could be more like say US treasury bonds .vs. bonds issued by individual states, in which case the Eurobond would be pretty well regarded. It really depends on how they are to work.

[Incognito]

Firstly Iceland did not go through a sovereign default, it's banks did.

That's not what you said though, you said and I quote:

If the Eurozone breaks up, banks will go bankrupt (check Iceland for the consequences, absolutely dire).

That's got nothing to do with sovereign default and if the Irish had done the same instead of guaranteeing the banks then chance are they'd be looking at recovery sometime soon as well.

When Iceland put their fingers up to the world, the money markets said they'd neve lend to them again, then they changed that to within 10 years, then 5 years and guess what, they're now talking about opening up the international money markets to them again 'soon'.

[BlasterBates]

That's not what you said though, you said and I quote:



That's got nothing to do with sovereign default and if the Irish had done the same instead of guaranteeing the banks then chance are they'd be looking at recovery sometime soon as well.

When Iceland put their fingers up to the world, the money markets said they'd neve lend to them again, then they changed that to within 10 years, then 5 years and guess what, they're now talking about opening up the international money markets to them again 'soon'.

Yes but what you have to remember is, after the banks in Iceland defaulted, the Icelandic government could still spend as much as it could beforehand, i.e. it could still pay salaries, pensions etc. In the case of Greece, a sovereign default would mean this would no longer be possible. This is why Greece isn't going down this route. Ireland could have done, because Ireland is solvent (as a government); I agree that this was a viable solution for Ireland. However one thing to be borne in mind, the Icelandic government couldn't have bailed out it's banks, it really was too big. I'll guarantee you one thing if the debt has been a lot smaller they would have paid it off, because it would still be cheaper in the long run than a bankruptcy.

When a country defaults it's cost of borrowing will be permanently higher. New York defaulted in the 1970's and it's still paying a premium for debt 40 years later, i.e. they're permanently economically handicapped.

Of course once the ensuing credit crunch is over the financial markets will eventually lend to Greece, but they'll demand high interest. But what do they do with all those pensioners, public sector workers, and social security "scroungers" until theire economy begins to recover in several years. Several years is a long time not to pay people. If Greece defaults and the Greek public sector workers get IOU's instead of cash, there will be widespread rioting.

If the Greek government thought they could stick two fingers up at the EU, default, and live happily ever after, they'd do it.

Even Obama is sh*tting bricks at the prospect of a Greek default.

[DimPrawn]

The root of all sovereign-debt crises

[DimPrawn]

Britain to sue ECB over threat to City - FT.com

[aussielong]

Buy Greek 2 yr treasury bonds?

Yesterday they were trading at a 84% yield. If Greece will not default then these Two Year Government Bond Acting as Benchmark Greece (GGGB2YR:IND) Index Performance - Bloomberg bonds are good value aren't they?