Greek Realities

Governments deal with other Governments differently than they deal with private individuals. No Government would hesitate in foreclosing on a company that failed to pay its taxes or indebtedness. However, every Government hesitates to do the same to a fellow Sovereign. This is why Greece will not be allowed to default, nor exit the European Union, nor abandon the Euro currency.

The Punch and Judy show occupying the financial press at the present time needs to be put in context. Greece is negotiating with their ‘official creditors’, namely Government instrumentalities, that have absolute discretion to treat any delayed debt repayment in any way that they choose. Greece may decide to repudiate its debt, but its creditors are under no obligation to accept the repudiation – they can forgive, extend, defer or simply cover the payment themselves. Official creditor nations will be angry, but they are unlikely to ostracise a fellow Sovereign.

Doomsayers postulating an imminent ‘Grexit’ need to start thinking like bureaucrats. There are no lines in the sand, no critical decision dates, nor any pressing timetable as it affects the Greeks’ ability to holdout for a better deal. The ECB, the EU and the IMF have no incentive to ‘writedown’ their debt, nor are they subject to the same accounting standards that apply to the private sector – which would otherwise have forced them to take a writedown. They just want the problem to recede back onto p38 of the Financial Times (below the crossword, preferably).

At some point, there will be a “Peace in our Time” declaration, when the Greeks and their official creditors strike a compromise. It is inevitable. It is reality.