A Greek "no" to bankruptcy

“We are accepting a 'haircut'; however it is not a credit event”. This is the line with which the Government will participate in negotiations until Wednesday. The decision was made at a meeting held in Brussels, under the presidency of George Papandreou and attended by Evangelos Venizelos and his economic team. The rationale was that this is in order not to identify Athens with Berlin and thus be punished by the markets after the lights of the summit have gone out. For Greece, absolute bankruptcy is merely a bargaining tool in order to persuade banks to abandon the “acquis” of July 21st.

The government is also requesting that the July 21st’s decision not be altered on the way that pension funds will join the restructuring of the debt. Specifically, the Greek side seeks for Government bonds to be extended without a “haircut”, something which was in effect in July’s agreement. This is in order to limit the needs of recapitalization in banks. It is noteworthy that pension funds hold 2020 government bonds worth around 20 billion euro. If these bonds are not excluded from a 50% “haircut”, then the public sector will need additional funds of several billions in order to support the funds and avoid problems in future pension payments.

In any case, parallel to the negotiation line, George Papandreou and Evangelos Venizelos agreed that the government should keep the debate which has begun over possible elections “on the downlow”  in order to not undermine the negotiating power of the Greek side. Beyond that, the matter does concern our partners, who want to know who will implement the agreement. Merkel and Sarkozy raised the issue of consent for the PM during a tete-a-tete on Sunday. Giorgos Papandreou was reserved, but hastened to declare the government’s intention to meet their commitments fully.

Depending on the final agreement, the government faces four choices:
- Calling for elections after the budget passes
- Seeking the approval of 180 MPs
- Holding a referendum.
- Seeking a coalition government - or the PM expands the cabinet with the participation of certain individuals.

A focal point for the options is not to defeat the agreement if it is achieved. Papandreou and Venizelos agreed on Monday morning that they will choose no action that will inspire our lenders to lead us to absolute bankruptcy and chaos.