Government braces for selective default

For the first time since Greece?s credit crisis began, the Cabinet met on Thursday to discuss how the government would manage the public impact of a selective default on its debt, a development which now seems inevitable.

Prime Minister George Papandreou told his ministers that they have to be properly briefed on the meaning and implications of a selective default, which is likely to come about as a result of the involvement of the private sector in the country?s second bailout.

Some ministers expressed concern that Finance Minister Evangelos Venizelos spoke publicly about a possible selective default when it is not yet clear how the private sector will come to Greece?s assistance. However, since help is likely to come in the form of extended bond maturities or lower interest rates, as well as a bond buyback scheme, it is almost certain that at least one of the three rating agencies will deem that Athens has, in part, defaulted on its debt.

Papandreou backed Venizelos?s handling of the issue and said it was important for the government to make it clear that being classified as being in selective default was not the same as Greece defaulting and going bankrupt. Venizelos said that it would not create problems for Greek banks either.

According to rating agency Standard