Sunday, 16 January 2011


There are few people left in the world who don't believe Greece will default, outside of our ever shrinking circle of creditors, none of whom are actually spending their own money. I imagine that a year from now, Trichet will be left on his own in the no-default (and long Greek debt) camp, his eyes sewn shut, scrawling 'Greece will not default' all over the walls of his office in his own excrement.

In the meantime, our own Government is still on the default denier camp, as indeed they must be until we're 100% ready to flick the entire financial world the notorious Focus finger. This is fine, and in the national interest. However, it would be nice if, in maintaining appearances, the Government would try to avoid building our whole nation a reputation for being petulant, ignorant idiots. Part of this involves conceding that talk of a Greek default is based on some objective facts, and explaining that we're doing our best to change these facts. Simply put, no one thinks we can grow fast enough to get out of debt before we're overwhelmed by the rising interest payments. We should be telling foreign commentators that we're reforming in order to enable growth, that we have a plan for where growth will come from and that we're winning concessions on the terms of our external financing. That would do.

UPDATE: Many thanks to my journo friend M.S. for pointing out that it was the Focus finger after all. Schoolboy error brought to you by Google Image Search.

Instead, our Ministry of Finance has chosen another tactic. In our response to the recent Fitch downgrade to Junk status, they issued the following statement:
"Based on this assessment, the credit downgrading of Greece’s sovereign rating by Fitch Ratings by one notch (BBB-to BB +) with negative outlook underlines the need for a new framework for rating agencies at a European level."
Translation from the usual Yo'mamanomic terminology:
"If you think Greece will default, you are an instrument of teh evil specuLOLtors. Well, we still have some MEPs and a seat at the Council left and we'll make you pay for this by setting Commissioner Barnier's dogs on you. We'll show you who's Junk-grade."
This might be problematic as Barnier's dogs have already been found to be barking up the wrong tree regarding speculators' bets on Greek debt. And of course, people like Dagong who, like us, feel that the credit rating agencies are subject to political and speculative manipulation, tend to think they have overestimated Greece's creditworthiness.

UPDATE: It doesn't help that our Government has been in talks with both Moody's and Fitch about avoiding a two-notch downgrade and managing the fallout for bank balance sheets, and we seem to getting our way. There's a saying in Greece, "Don't lick where you once spat."

Incidentally, a BB+ rating means, in Fitch's own words, that
"there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met."
Which sounds entirely fair. A BB+ rating also implies a probability of default that is less than 10% over 5 years. I know Fitch doesn't say this anymore, but that's the benchmark. Now, I dare anyone to sit in front of a mirror and say the words 'the probability of Greece defaulting over the next 5 years is less than 10%' three times. Apparently the ghost of Charles Ponzi shows up and drags you to hell if you do.

The Government's correct reaction would be to point out that since the market has priced in a 56% to 75% probability of default already, Fitch is giving us some very good news indeed and everyone should buy our massively underpriced bonds. Or we could just be honest and tell Fitch that they're always lagging our credit situation (and everyone else's) by about 6 months so no one believes them anyway. They're basically peddling tabloid celebrity breakup stories for the financially educated. Everyone just makes up the stories and when the truth comes out they are as surprised as the rest of us but still pretend to have known all along.

But no! Telling the world to fuck off even as we beg our creditors for more time to pay off their loans is apparently the way to do it. Because making us all look like idiots somehow makes the Greek Government feel better about themselves.

UPDATE II: It's important to note that by default I mean any credit event which leaves our creditors holding Greek debt whose present value is less than what they originally held - and which forces them to recognise losses on the P&L.  Some restructurings of our debt and of course any haircuts will constitute defaults.


  1. Very funny (and sadly true) stuff! Must get all capital out of Greece...


  2. @MvY Just out of our debt please. Venture capitalists are welcome. They like 50-50 odds if the returns are big enough.

  3. Btw MvY I did recognise you there! A very welcome reader too!


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