Greece is in no Position to Renegotiate the PSI

I argued in an earlier post that the result of forcing Private Sector Involvement (PSI) to forgive some of Greece’s debt would be to raise Sovereign borrowing rates across Europe. Well, I was right and the EU has backed down on forcing future PSI writedowns should member countries find themselves in distress. PSI remains a requirement for Greece, however. How should Greece approach these discussions?

Bankers don’t get angry, they get even. Imagine their surprise when Reuters carried the story that Greece intended to bargain down their debtholders to accept a greater haircut than had been agreed back in October! Debt-forgiveness is an act of magnaminity and the recipient should be cooperative and grateful rather than combatively haggling for more. Bankers can, and will, simply walk away from the table and force default.

The best thing Greece can do is agree to their bankers conditions. If they don’t, Greece will suffer in the future.