Denouement, moment of truth, endgame, time of decision – call it what you will, a turning point is about to occur in the long-running, many-sided stand-off between Greece and its creditors from the private markets and official lenders. There’s no great secret about the outcome – a massive restructuring of Greek debts. But there’s a great deal of uncertainty on the ramifications for other problem-hit members of economic and monetary union (EMU) and the banks which will need recapitalisation as they wake up to the certainty that the government bonds in their portfolios are not risk-free.
At the annual meetings of the World Bank and International Monetary Fund (IMF) in Washington last month, sentiment was split between the doomsayers and the realists who opine that one way to find out the result of a Greek default is to let it happen. I liked the comment from Gao Xiqing, president of China Investment Corporation (CIC), who told an IMF seminar that just because people like George Soros thought a Greek default could bring ‘the end of the world’, that didn’t mean that it wouldn’t happen.