on Greece

Interesting comments from Alphaville (from Citi’s Greek banking team).

The decision of whether to haircut or not is a cost-benefit analysis. For Greece, we believe, the pros include: immediately lower interest payments; faster progression to positive fiscal balance; and less pressure on the government to press on with austerity measures. The cons for Greece could include: denied access to the capital markets; deterioration in relations with Euro Area and EU members (if the haircut is done “prematurely”); and a round of recapitalisation for the domestic Greek banking sector and some Government entities (such as the social security fund). In order to minimise the cons of haircutting, Greece will likely await a macro inflection point — where real GDP growth starts turning positive and the primary balance enters positive territory. This is important as it could potentially allow Greece easier re-entry into the capital markets. Such an inflection point, according to our and other market participants’ estimates, could be the year 2013.