Our discussions on matters economic with a senior figure in the insurance industry raised an intriguing question recently. It is this: in relation to the difficulties that have beset
relations with the ECB and the IMF, and given that the Greek government has
already missed a scheduled payment to the IMF, how would a default in this
instance be defined? Greece
There have been many defaults by countries, but the most significant one in the recent past was when
or was unable to honour its commitments to the holders of its sovereign bonds
in 1998. In that case it was adjudged to be in default, and that judgment call
was made by the international rating agencies. Russia
Machiavellian machinations in the ECB
The famous (or infamous) medieval political observer, Niccolo Machiavelli, wrote in his major work, “The Prince”, that anything can be rationalised after the event, provided always that the parties to it are able and willing to carry it out. There is evidence that the brinkmanship being indulged in by the Syriza government in Greece, where it is depending on the unwillingness of the leaders and other members of the Eurozone to allow the precedent of a member leaving the union, could well be based on a pragmatic understanding of the situation. But where is the rule that says a member state must leave the Common Currency because it has failed to repay a loan to the ECB (and Mario Draghi is always adamant that his organisation is a rule-driven one)?
The real sanction that the central bank has to hold against
is the advancement of new funding, which it has been withholding pending fiscal
reforms. However, it has been withholding those funds for over a year, and
there is no reason why it cannot continue to do so. Greece
The ECB, the EU Commission and the core EU states, of course, are walking a tightrope of their own, because any perceived concessions to
will almost certainly
trigger disruption in other Eurozone states. Greece
A lot will depend on the rating agencies. Already, it has been suggested that unpaid loans to the IMF and the ECB, which can hardly be described as normal bondholders, could be outstanding for quite some time before S&P, Moodys and / or Fitch would call a default.
And it might be instructive to remember that the above mentioned Machiavelli was a countryman of the ECB president, Mario Draghi.