Well, NOW we can say that the greek debt is on the knive’s edge. The haircut was a meagre 12%, a world record for small haircut while defaulting, peanuts really, but that’s the price of a “velvet” default where the bankers make part of the decision…

Greece will be on austerity for 30 years and if keeps budget surpluses, it could repay the debt… Theoretically. Probably in the meantime the eurobond will come along too, so judging this only with economic criteria and not political too would be wrong.

Now the “civil war” inside Greece will begin stronger between the leftists that continue their catastrophology and request to default whatsoever, the populist right wing opposition and the rest. Which ultimately comes down to 2 sides: Those that want Greece to reform and those that don’t. Unfortunately, the anti-reformist propaganda has been reinforced very much in the past year, because the country had to follow a program that was leading nowhere and was increasing the debt. This has also caused the pro-reformist to lose much credibility and political capital. The other unfortunate thing is that the 2 ruling parties have lost confidence of the voters. Right now each of them gets only 20% in polls. This means that in order to pass new austerity measures, none of the 2 can do it on its own. This plan should have happened last year, but Mrs Merkel was more worried about Bild magazine and saving her banks not thinking about long term solutions.

If Greece can return to growth and sustain it without deficits, this will work. If not, there will be bailout mk3 or default mk2. If the haircut was bigger, this would not be an issue. But Mrs Merkel chose to cut only the strictly necessary out of the debt, as to give a 50-50 chance to Greece.

Interestingly Varoufakis predicts more turmoil:

Europe’s Faustian Bargain
http://yanisvaroufakis.eu/2011/07/22/europes-faustian-bargain-on-the-latest-attempt-to-resolve-the-greek-debt-crisis-and-its-repercussions/

Also interesting notes:

1) The ECB will probably bend its rules once more and accept greek bonds as collaterals while Greece will be in “selective default” rating from the rating agencies.

2) Despite the best effort of rating agencies that will downgrade Greece, the ISDA will probably NOT accept that there was a credit event, making the CDS holders losing their bet and so mainly US and bit EU banks won’t have to pay for the CDS.

3) Varoufakis makes good points about why speculators will retreat shortly, but afterwards regroup and attack again. I believe that sooner or later, the eurobond will become the only option. Or at least, increase the funds of the EFSF so much as to be able to “burn” many attacks swiftly and massively.

4) The bigger part of the “private contribution” will come from the greek banks. 😀 But all in all, the total of the banks get to lose only 13 bln euros. Not much of a surprise considering that half of the bankers where in the EU meeting together with the politicians.

Good summary article:

The euro-zone crisis summit
Russian or Belgian roulette?

http://www.economist.com/blogs/charlemagne/2011/07/euro-zone-crisis-summit