Comments on: Why Greece won’t go Argentine A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: IAKOVOS Thu, 10 Mar 2011 16:32:22 +0000 wall streets financial products have made a global financial bubble ready to would be quite different if greece had a federal reserve ready to print millions on demand from the greek government,but overlending and profit sharks have created a global financial crisis that will devour any week market in minutes.greece is first …..

By: vgps Sun, 11 Apr 2010 12:53:09 +0000 Nice Article. Comparing a city in a country and country in itself doesn’t seems to augur well. Could be considered for argument sake, but there are lot of complexities available. Lets see.

By: johnhhaskell Sat, 10 Apr 2010 07:06:05 +0000 Felix- good post. First off I would suggest you begin your analysis by trying to figure out how much debt service the Greek economy can come up with given its current real exchange rate, and work forward from that, rather than apply various appealing historical analogies which may or may not fit.

Most “successful” defaults involve a serious devaluation, which swings the defaulter’s trade balance sharply positive, thereby creating a lot of savings, which can be used to pay creditors. If Greece remains a “fully fledged member of the Eurozone” it’s hard to see where they will get the savings, since they will first have to go through an “internal devaluation,” i.e. severe recession, to get their real exchange rate back in to line.

I love ratings agencies, after you trip on a crack in the sidewalk and are sprawled out on the ground trying to get your breath, they come up and say, “look out! There’s a crack in the sidewalk!” I suspect the agencies are keeping GR as “investment grade” because they have been getting LOTS of phone calls from various EU capitals reminding them of their “social obligation” whatever whatever to keep GR “investment grade,” despite the blatantly obvious fact that GR, like AIG, is only “investment grade” so long as it is perceived to be. As soon as someone asks “why is GR investment grade again?” they are frozen out of the market.

Furthermore, I thought, as a purely mechanical matter, if you default you are automatically rated “D,” for “in default.” And after that it takes quite a while to get back to investment grade, as any number of post-default sovereigns can attest. You don’t default and then have your credit rating rise immediately thereafter. The agencies are dumb but not that dumb.

I hope you are right that the Greek politicians will refrain from making further self-sabotaging comments about how the Germans stole their gold, how the Italians resorted to even more aggressive balance sheet “window dressing,” how Portugal will be the next one to go down, et cetera.

As for New York City, you quote Buffett saying that NYC’s bonds were largely held by wealthy residents and then jump to conclude that Greece should restructure like NYC, without making reference to the fact that the vast bulk of GR’s debt is not held by Greeks. I consider this a highly material fact.

No matter how much the Greeks want to remain part of the EU, or fully fledged members of the Eurozone, or whatever, if they continue with their current uncompetitive real exchange rate, they aren’t going to have the tax revenue to generate a primary surplus to pay back creditors. That’s it.