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Greece default risk now 98%

I will be on RT Television today talking about the euro crisis at 6 and again at 7PM ET. The likelihood of a hard restructuring in Greece will be a main point of conversation. The following blurb from Bloomberg tells you what markets think:

Greece’s chance of default in the next five years has soared to 98 percent as Prime Minister George Papandreou fails to reassure international investors that his country can survive the euro-region crisis.

“Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.”

A few month ago, I wrote that:

Internal devaluation and austerity is not a solution. They are politically unsustainable. It is obvious to most that defaults are coming. For Greece, sovereign default is a foregone conclusion. For Ireland, by dint of its socialisation of bank losses onto taxpayers, sovereign default is a real possibility. In Spain, bank losses have not been socialised and so the sovereign remains relatively healthy. However, Spanish banks have been slow to recognize losses and that means many contingent liabilities keep the market for Spanish government bonds in a state of stress. Portugal is well above the Maastricht 3/60 hurdles and contagion has spread to Belgium, Italy and France. Meanwhile, the public in countries like Slovakia and Finland want no part of future bailouts, while the public in countries like Greece and Spain are fed up with double digit unemployment and the prospect of a decade more.

-The European Sovereign Debt Crisis, Dec 2010

I think David Blanchflower is right; the Europeans have run out of options. For Greece, the day of reckoning is close at hand.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

3 Comments

  1. Bob Morris says:

    Hello 2008… But on a bigger scale. Yikes.

  2. theta says:

    Probably a technicality but the actual probability is lower and the recovery rate lower as well. The quoted probabilities assume a recovery rate of 40%, which means that soon we’ll see a headline of a default probability of >100%, which obviously doesn’t make sense and proves that the market implied recovery rate is <40%.

    • David Lazarus says:

      I think that the likely recovery rate will be around 10% on Greek debt. Any higher and even dropping out of the Euro with all the pain that involves means that debts will be much lower.