[Although it will probably be called a restructuring or a rescheduling rather than a default]
http://www.ft.com/cms/s/0/372886dc-400d-11df-8d23-00144feabdc0.html
April 18 2010 Financial Times
Greece's bail-out only delays the inevitable By Wolfgang Münchau
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Just do the maths: Greece has a debt-to-gross domestic product ratio of 125 per cent. Greece needs to raise around E50bn ($68bn, £44bn) in finance for each of the next five years to roll over existing debt and pay interest. That adds up to approximately E250bn, or about 100 per cent of Greek annual GDP.
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Greece needs to turn a primary deficit of more than 7 per cent into a primary surplus -- before interest payments -- of at least 5 per cent, a turnround of more than 12 percentage points, while at the same time improving its competitiveness through wage cuts. The latter implies deflation. As the Greek economy goes through the adjustment process, the debt-to-GDP ratio will deteriorate towards 150 per cent or so.
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He also points out that the current peak in the risk premium of 400 basis points implies that bondholders think there is a 20% chance of a 20% loss on their bonds (or an 8% chance of a 50% loss -- or any other combination that gives you 400). By his math, there's more like a 90% chance of a 20% haircut. And the bondholders realize that, spreads will explode.
Michael