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What Happens When Greece Defaults?
Comments
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As a Greek individual given those odds surely you would be already whether pulling all your money out of the bank and in to euro notes (assuming they remain convertible) or else buying CDS's from a non-Greek financial institution to hedge your default risk - both of which would surely already have prompted a run on Greek banks?
Many indeed have, especially the rich, for some time now, simply draining euros from their Greek euro accounts and opening euro accounts elsewhere in the world. Those funds then being replaced by ECB loans to support the Greek banks, with, ultimately, the ECB taking on the risk. It'll be interesting to see if the EU ultimately legislates in future against the movement of capital for this very reason. That would surely boost the likes of (portable) gold sales?There is a pleasure in the pathless woods, There is a rapture on the lonely shore, There is society, where none intrudes, By the deep sea, and music in its roar: I love not man the less, but Nature more...0 -
Would they not just ban transactions over a certain size rather than freezing all accounts?
Also back of a fag packet calc but a 2%% risk premium and a default likely to cost 50% suggests a 50% chance of default.
As a Greek individual given those odds surely you would be already whether pulling all your money out of the bank and in to euro notes (assuming they remain convertible) or else buying CDS's from a non-Greek financial institution to hedge your default risk - both of which would surely already have prompted a run on Greek banks?
Apparently the way sovereign CDS work means that if (as seems likely) bond holders are required to take a haircut and the maturity dates on bonds are extended then recovery rates from CDS may well end up extremely low due to the current situation where long dated yields are much higher than short dates.
I'm certainly no expert on these products so I'm just writing what I read. It sounded plausible to me as a layman though. There's some stuff on FT Alphaville about it.0 -
Procrastinator333 wrote: »If I were Greece, I would opt for default. The current debts and austerity are just too much, they will never recover. It is only a matter of when they accept this, not if. Take the pain now. Split from the Euro. Devalue the debts by 90% and just start again. If they do this they likely wouldn't have to worry about running up more debt for a while as I doubt anyone would lend to them.
I don't think this would be in the interests of the rest of the eu, but I think it would be the best thing for Greece itself.
Once one shows the way, I can see others following.
If they do get out of the Euro, then how many Dracmas or what ever to one £?
How can a country just start a new currency?
Mexico is seriously thinking about a new currency backed by silver, could be as early as this year says billionare Mr Price.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/5/18_Hugo_Salinas_Price.html
Greece should do the same.0 -
Apparently the way sovereign CDS work means that if (as seems likely) bond holders are required to take a haircut and the maturity dates on bonds are extended then recovery rates from CDS may well end up extremely low due to the current situation where long dated yields are much higher than short dates.
I'm certainly no expert on these products so I'm just writing what I read. It sounded plausible to me as a layman though. There's some stuff on FT Alphaville about it.
We'll probably discover that the Greek government is itself taking out sovereign CDS's - effectively betting that it would indeed default while claiming that it won't.....Well I would if I was in their position!0 -
But, what I dont get is this, they say as soon as it happens , all Greek savings will be reduced to nothing, virtually wiped out , like what happened in Argentina & Russia.
However , I cant see this, if i was a Greek , I would just withdraw my savings in Euros and either keep them under the bed or stick them in a bank in Italy.
So how is that going to work?0 -
- Every bank in Greece will instantly go insolvent.
- The Greek government will nationalise every bank in Greece.
- The Greek government will forbid withdrawals from Greek banks.
So if you use a foreign bank in Greece
Your bank wont become insolvent
Your bank will not become nationalised
You can still withdraw your Euros
hurrr durrrrr0 -
However , I cant see this, if i was a Greek , I would just withdraw my savings in Euros and either keep them under the bed or stick them in a bank in Italy.
That's what I was thinking too, though maybe my bank would be in Germany or Austria rather than Italy. When people are at currency parity (euro to euro) what is to stop capital flight before this happens? Isn't there financial freedom of movement within the EU?Please stay safe in the sun and learn the A-E of melanoma: A = asymmetry, B = irregular borders, C= different colours, D= diameter, larger than 6mm, E = evolving, is your mole changing? Most moles are not cancerous, any doubts, please check next time you visit your GP.
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vivatifosi wrote: »That's what I was thinking too, though maybe my bank would be in Germany or Austria rather than Italy. When people are at currency parity (euro to euro) what is to stop capital flight before this happens? Isn't there financial freedom of movement within the EU?
IIRC it's mainly German and French banks that Greece owes the money to. It would be interesting to see what happens to them if Greece defaults. I'd take my money further afield if I was Greek.0 -
vivatifosi wrote: »That's what I was thinking too, though maybe my bank would be in Germany or Austria rather than Italy. When people are at currency parity (euro to euro) what is to stop capital flight before this happens? Isn't there financial freedom of movement within the EU?
As posted in #12, it already is. However, my guess is that the EU may well impose restrictions on the movement of capital in the future to reduce such inherent risk to the ECB.There is a pleasure in the pathless woods, There is a rapture on the lonely shore, There is society, where none intrudes, By the deep sea, and music in its roar: I love not man the less, but Nature more...0 -
The problem greece has is that default still doesn't solve its problems. It still has a deficit.
BTW, if Greece defaults, I think the UK will too.How can a country just start a new currency?
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Countries do this on a fairly regular basis.“The ideas of debtor and creditor as to what constitutes a good time never coincide.”
― P.G. Wodehouse, Love Among the Chickens0
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