Nonsense, it is capitalism; these bondholders chose the wrong bond. Why is this different than when someone bought corporate bonds with the corporation later going Chapter 7? If you cannot take the heat, stay out of the kitchen.

Iceland had the right attitude: stuff the banks and holders of debt. Customers will return; they always do.

They only reason this does not happen is that bankers are often very powerful people, knowing many leaders on a personal level. We need leaders with the courage to do the right thing; Angela Merkel is the best we have so far in the EU.

This might be grasping at straws, but when you mention that “European countries, if and when they default, will be the richest countries ever to do so,” I thought to King Phillip II of Spain. It’s hard to make comparisons across four-plus centuries, but it was a wealthy (by the standards of its time) country that restructured (multiple times) while largely maintaining access to financial markets. One big difference was that the lenders were not distributed; this might actually have made his job more difficult, and the moderns’ less. I’m also not sure how high his debt-to-anything ratios got before he defaulted. His domestic political constraints were certainly different from those of democratic leaders, but he was hardly an absolute monarch, and in many ways his situation might have been close enough.

It is too soon yet for the countries to default. They have to continue to slash spending for another few years.

The critical point will be when their ongoing deficits, sans interest payments, get to zero. That will be the time when governments won’t need the debt markets for new borrowing but only to roll over existing debt. That will be the time they acquire strong bargaining chips.

It is ironic but bond holders must initiate the restructuring now, they shouldn’t wait and risk losing the upper hand.

petar marinov
(san francisco, california)

One point I would make is that when you say: “in a market-friendly restructuring, old bonds get swapped directly into new bonds, with the implied threat that if bondholders don’t accept the deal, then the old bonds will simply default and stop making payments” that is actually by definition a “coercive restructuring.” The key is the implied threat. Any time an investor is making a decision under government imposed duress than they are being coerced.

What you call a “coercive restructuring” is actually a confiscatory restructuring. When your old bonds get swapped for crappier new bonds or fewer new bonds you were not coerced you were robbed.

Your choice at that point is to move on and accept what the robber has allowed you to keep or try your luck in international court. That process is sufficiently expensive and time consuming that most debt holders take the new bonds and make a mental note not to lend to that country for a few years.

Best hopes for goverments to effectively allocate the resources they have…. and to not allocate resources they don’t have.