Terminology versus reality

The truth is too stubborn to bend to wishful thinking. Up until recently, Prime Minister George Papandreou stated that Greece would pay off every last euro of its debt and that any from of default would be catastrophic. His statements sounded more like an incantation against the ills to come than a dependable reassurance from a statesman.

The truth is that the Greek debt has become unsustainable and will continue to be even if austerity measures are pushed through. We have constantly stressed over the past year that the only solution for Greece, the eurozone and the country?s creditors is fiscal reform in combination with a consensual restructuring that will render the debt serviceable. It is the efficacy of a debt restructuring that is important, therefore, rather than the form it will take.

With a great deal of delay, the inner sanctum of Europe is only just beginning to discuss issues which it once rejected outright. It has failed, however, to agree on a radical solution for the Greek predicament that will also safeguard the eurozone. The main cause of the rift between the parties involved in the Greek bailout is the disagreement on the distribution of the cost.

German Chancellor Angela Merkel, who is guilty of many sins on the issue, is quite right to demand the participation of the private sector in the bailout effort. Her position, however, is challenged by European Central Bank President Jean-Claude Trichet, who places the interest of his ?babies,? the European banks, above all else.

For Athens, pushing for a decision is vital to ensuring that its debt load is made as light as possible, without endangering the cash flow to Greek banks from the ECB. How the rating agencies will define this process is the business of the holders of CDS, not of Greece. Greece needs to remain focused on reality, not on terminology. There is a qualitative difference between a default, uncontrolled bankruptcy and a consensual restructuring, which will be called a default whether selective or otherwise. Greece has been shut out of the markets and the quickest way back in is for its debt to be made sustainable through a consensual restructuring. In this respect, opposition leader Antonis Samaras was wrong to reject the idea so firmly on Tuesday.

Up until recently Papandreou claimed that a restructuring would destroy Greek social security funds and banks (which hold approximately 20 percent of the debt). The fact, though, is that the state can cover the losses of both, and still have a long-term benefit worth tens of billions of euros.

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