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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: ggersh who wrote (38769)	5/31/2011 7:28:46 PM
From: Giordano Bruno	Read Replies (2) \| Respond to of 71477

How does zero chance sound as the squeeze continues after hours? The brittle politics of Greece’s rescue The next report on Greece’s rescue programme is likely to confirm that Athens cannot return to markets in 2012 as planned. Without 12 months of financing secured, the International Monetary Fund may not disburse its share of the next loan tranche. The financial problem this throws up can be solved. The political challenge is harder. Eurozone leaders know that the Greek rescue plan may require more money to achieve its goal – hence the buzz about a “reprofiling” of Greek debt, in which private creditors would extend their claims’ maturities while principal and interest would not be touched. Some criticise a reprofiling for making nary a dent in Greece’s indebtedness. This is a bad argument. The proposal is made within the understanding that has guided the rescue from the start: Athens can and should service its debts but not be forced into default by a shuttered bond market. Given this premise, a maturity extension may act as a useful remedy for Athen’s looming refinancing hump. But its greater function is political. The eurozone will not find the funds required by the IMF unless Berlin is willing to foot its share. And in Germany, some form of private sector sacrifice seems indispensable to detoxify more aid for Greece. The attraction is that private lenders could be said to keep some skin in the game without having to actually face any losses. The problem is obvious: what incentives do investors have to extend the maturities? Threats to make them do so “or else” will just strengthen their desire to get out when their claims mature and may constitute default for swaps markets. Berlin and its partners must offer carrots, not sticks. But they are not yet ready for the incentive of a Brady bond scheme. In Greece, too, the politics is becoming harder. The country has made extraordinary efforts to cut spending but tax collection has not improved as it should. Athens promises large-scale privatisations but few believe it can carry them out. In both cases, vested interests are proving stubbornly resistant. The talk is now of letting foreigners help run Greek privatisation and tax collections. Few, if any, governments could accept such an extreme loss of sovereignty and survive. If prime mininster George Papandreou told his people this would end the system whereby a majority of outsiders pay for the privileges of a few, he would be right. Still, the outsiders’ support cannot be counted on. More statecraft is sorely needed on all sides as trust between core and periphery goes on eroding. . Copyright The Financial Times Limited 2011.