"If the rating agencies are using the word you just used (default), it is not part of my vocabulary. Greece will pay its debt," -- Nicolas Sarkozy

by Eric Dondero

Felix Salmon at Reuters is reporting this morning:

The latest Greek bailout is done, and it involves Greece going into “selective default,” which is, yes, a kind of default.

This is a bail-in as well as a bail-out: while Greece is getting the €109 billion it needs to cover its fiscal deficit, both the official sector and the private sector are going to take losses on their loans to the country.

Cranmer blog agrees:

When you examine the ‘aid’ package agreed last night to bail out bankrupt Greece (again) and keep the euro afloat, it amounts to a default. When you borrow cash on agreed terms and repayments cease because your bank account is empty, you’re not suffering a temporary cash-flow problem: you’re bankrupt. So if the lender should be stupid enough to lend you even more cash simply to enable you to go on paying him, it doesn’t take a dumbed-down GCSE in maths to work out that this money merry-go-round is a fiscal illusion. But this has been hailed as another great triumph of EU solidarity, and so Presidents Barosso, Van Rompuy and Papandreou drank champagne into the early hours of the morning, in awe of their economic flair and wonder at their political skill.

But while they call it ‘aid’, ‘restructuring’ and a ‘comprehensive agreement’, it amounts to default.

How will world markets greet the news in the coming hours and days is anyone's guess? Though, it may take a while to properly interpret the "euro-speak" for financial analysts to get a true grip on the situation.

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