Debt Default in a Developed Country Post author By Philip Lane Post date December 21, 2009 John Dizard writes in the FT on this interesting topic: you can read it here. Categories In Banking Crisis Tags debt default 10 Comments on Debt Default in a Developed Country ← Basel Committee’s New Proposals → Honohan Interview on RTE 10 replies on “Debt Default in a Developed Country” and this http://www.independent.ie/business/european/ecb-urged-to-revise-collateral-rules-after-bizarre-veto-on-greek-loans-1983211.html doesnt help…. “The eligibility of Greek government bonds is in doubt after agency Standard & Poor’s on December 16 joined Fitch Ratings in downgrading its debt to BBB+. The move left Moody’s the only major agency with an A1 rating on Greece’s debt, three levels higher than the Fitch and S&P grades. A Moody’s cut to Baa1, a move of three notches from the current grade, would mean Greek bonds will not be accepted by the ECB if it reverts as planned to its pre-crisis collateral rules in a year’s time. “This is a bizarre and ultimately untenable situation for the ECB,” said Erik Nielsen, Goldman’s chief European economist in London. “Unless we get a major improvement in the Greek fiscal outlook during the next few months, the ECB would want to rectify the situation. “The unthinkable — that the ECB would not accept sovereign securities from a member as collateral — has become a measurable risk, and one exclusively controlled by Moody’s,” Mr Nielsen said.” If the Argentine experience has taught us anything, it’s that defaulting on debt is a splendid solution that avoids a lot of the problems inherent in servicing it. http://www.forbes.com/2009/12/18/government-budget-deficit-personal-finance-financial-advisor-network-treasury-debt.html The Australian federal opposition second finance shadow, name of Barnaby Joyce, raised the possibility of US default lately. He was called irresponsible, but not a raving looney! I have been fairly open to the idea that Ireland would gain from low CT rates and attract more FDI especially from the USA. I may be wrong. Ben is correct and the NAMA nonsense should still be nullified. Good article. Regarding court cases, seizing assets etc., our government debt is manageable. The problem is with the bankers enormous gambling debts, which the government were panicked into guaranteeing 15 months ago. This guarantee was constructed in haste and it can also be dismantled in haste. Or, the government also has the option to just run the clock on it. It’s good to see that default is now being considered as a viable solution. This will make people consider options differently, Irish senior bank executives will lose a good deal of their swagger over the coming weeks as they can now clearly see that its looking less and less likely that the Irish taxpayers are going to be left holding the can for their gambling debts. They can stop looking greedily at the contents of the National Pension Fund and other reserves of cash they had in their sights. Ireland should not have to default on these blackguards debts, remove the guarantee and let them default themselves. It’s Goggin, Sheehy, Boucher, Doherty etc. who made those deals with the bondholders, so let them now explain to those same people why they squandered their money. It’s got absolutely nothing to do with the taxpayers of Ireland and neither we nor our children should have to reduce our standard of living for the next decade or so, to bail out these reckless bankrupts. The Good Professor needs to get these people into the stand early in the New Year and Minister Lenihan also needs to carpet them early on and tell them a few home truths. Irwin Stelzer has a piece on Ireland in todays WSJ, and compares us to Greece and the UK. Seems to have been co-written by the IDA: http://online.wsj.com/article/SB10001424052748703523504574603870922982770.html An interesting test of wills between the Greeks and the EU. The highly unreliable and possibly fatally flawed US rating agencies will not dictate to the ECB what it can or cannot do, but continued failure by the Greeks to sort out their chaotic public finances makes it the test of the EMU. What stops the Greeks from printing whatever Euro it wishes ie why should it listen to Franfurt at all? Ultimately it boils down to law enforcement when there appear to be no laws? Ahh, I know a few funny handshakes will settle it! One wonders what the international markets would think if we sought to resile from the guarantee and asked senior bondholders to reach resolution withthe banks. On the one hand it is a sovereign default. On the other hand, it is the banks’ debt and we have not hurt the position of the bondholders in the meantime. Nobody is under the illusion that we could make good on the guarantee if it were called in so why should we pretend otherwise? Obviously, we would prefer to be “forced” into such a default by the EU/ECB. I think I covered this in my predictions for 2010 at http://josephmorgan.blogsome.com My last post as it’s a long drive to Donegal – with or without the snow. Merry Christmas everyone. http://www.shanghaidaily.com/article/print.asp?id=423054 Is this not a very mixed message addressed to those in the world who might want US treasuries? Is it even economic sense? What am I missing? http://www.fairfieldweekly.com/article.cfm?aid=16014 Marc Faber also has said this ….. applies to the USA only, couldn’t happen here …….. ! Comments are closed.