Thursday, September 27, 2012
Greek 'Official Sector Involvement' And European Sovereign Debt Write-Down Alert
September 27, 2012
When the Greek problem became apparent around 2010, it was already too late. Spreads were already rising for some time and worries about the Greek economy were already a daily topic of conversation as early as 2008. For some odd reason however, everybody thought nothing would happen, because until that time, nothing indeed had happened.
So when the markets asked a very high yield from Greece, the European Union, the IMF and the ECB teamed up to save the day, in what today is called the troika. Actually it was the first time something like this ever happen. Never before had the world seen such an international consortium of such financial fire power like this.
So this troika looked at the Greek situation and decided that Greece would be able to make it, just as long as it got some help from its friends. So it laid out a plan, whereby Greece would be put on the path to growth and sustainability, as long as it did not default on its debt. So in order for this not to happen, it decided to roll over Greece's debt, until such time that Greece would be able to return to the markets and the troika could get the money back.
So it rolled over about 180 billion euros in Greek debt and gave the market (European banks) a break. The banks got top euro for their bonds, compared with what they would have gotten in the secondary market. But the troika was not worried, for its models told it that Greece would once again be sustainable, and at some point in the future, it would get its money back.