Sunday, 10 April 2011



My regular readers will probably be scratching their heads at the massive response to this blog's first-ever Greek language post. I assure you I will not make a habit of this. If I wanted to go into Greek politics, well, I would have stayed at home wouldn't I? So there will be no further posts in Greek, not ever and for no reason.

I do think everyone has a responsibility to do their bit for the country in these nightmarish times, though, so I threw my two cents at our national default debate. It threw up a torrent of interest and a tiny bit of abuse here and there; not nearly as much as I was preparing for.

Now, as promised to the regular readership who will still be with me tomorrow and the day after, here is a quick reading list on recent default episodes and their implications. I will be drawing on these for inspiration over the next couple of days.

If you've got time to kill, I suggest reading this review of the major defaults of the 90s. It is ridiculously comprehensive so don't start unless you can see it through.

For the rest, here are some key facts, some of them obvious:

1. The median modern-day defaulter stays completely locked out of the markets for 3 years and partially locked out for 7 years (source). I think our case will be different: we are simply too big to fail. I expect a slightly shorter time in the wilderness for Greece, and a switch to full access right away. Read the paper and you'll see why. On the other hand, it's important to note that the exclusion times in the 80s were almost twice as in the noughties. No prizes for guessing what this decade will look more like.

2. The IMF has no real methodology in place for acting as administrator to a sovereign default (source). They will literally be screaming 'Don't die on meeeee!!!' throughout.

3. The welfare costs of a default are mostly incurred prior to the default itself, in anticipation of the default, so timing is very sensitive (source). The longer it takes to restructure, the worse things get (source).

4. There are better and worse ways of defaulting, and governments that handle defaults correctly can do reasonably well out of them (source)

5. The Greek state needs to be extremely careful about its assets abroad in case of default, as they could be seized by foreign governments (source). The experience of Iceland, one of Britain's worst moments in living memory, is very indicative.

6.  It is stupid to default on all debt just to make a point. Default should be limited to pressing immediate payments and should not be done as a matter of principle (source).

7. The majority of the costs associated with a sovereign default are often associated with bailing out the banking sector in its immediate aftermath. If the Greek people find out, just as they are cheering their defaulting government on, that they are bailing out the banks as never before, the threat of real violence will be extreme. So fix the banks before you default (source).

 8. It takes two to four years for the full effect of default on the manufacturing sector (source) to make itself felt and the less capital-intensive the business the worse.


  1. Manos: thanks as always for a great summary and compilation of the key issues.
    There was a good observation made recently, saying that the debt is a symptom of the problem and not a cause of it. Simply writing down a large part of the debt would of course help future debt dynamics, but doesn't really fix the main competitive issues of the Greek economy. And yet people seem to be seeing a restructuring as a panacea: complete it and then life goes back to normal. I see why you might forecast a second restructuring a few years down the line. My worry would be that unless these issues are recognised then the case for dropping out of the euro and devaluation surely gets stronger?

  2. @Old friend of the blog: The problem is the people. The deep, dark rot at the heart of the people. I forecast not just two restructurings minimum but also a serious bout of civil unrest.

    My mom called today. She says she got an email instructing her on how to tell whether someone's a paedophile.

    Next stop, Mad Max world


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