James Saft is a Reuters columnist. The opinions expressed are his own.
The proposed bailout of Greece probably can’t escape the scarlet D of default, at least if the ratings agencies follow their own guidelines.
Even if the deal goes through, it is insufficient to solve Greece’s debt problems, only buying time for those involved to work out how best to engineer a transfer of bank losses to taxpayers.
Greece approved an austerity package on Wednesday, removing one road-block to further support, but it is still unclear how to get banks to participate in debt relief — a German requirement — without prompting a destabilizing event of default on Greece as a sovereign creditor.
French banks have proposed a burden-sharing plan, supposed to be voluntary, which EU officials are pushing as a means to thread this particular needle.
Under the plan, holders of Greek bonds maturing in the next three years would agree to roll over half of their exposure into new Greek 30-year bonds. Another 20 percent would go to fund a vehicle to act as collateral against Greek default.