Greece: default settings
The other problem is that the agreement that most people hope for is probably impossible to construct. The write-off is supposed to be voluntary. But its terms are too harsh, and some bondholders will be too truculent, to achieve that. And it is supposed to be for a minimum of €100bn, which means that it is not really voluntary. The aim is to cut Greece’s debt to GDP ratio to 120 per cent by 2020 from over 160 per cent today. A 50 per cent writedown is unlikely to achieve this given the macro deterioration. But an agreement cannot be too generous to Athens, or else other stricken eurozone countries, such as Portugal, might demand one, too.
A default by Greece is not really a question of if, or even when, but how. The private sector initiative is about managing an orderly default. That is why an agreement is important. Greece has to repay €14.4bn of debt on March 20. Without the private sector on board, it will not have the cash to do so. Bondholders should embrace a Greek default on the lousy terms on offer. The ugly alternative is that they may have even worse terms thrust upon them.