(And out)
The above chart is courtesy of Alex Bellefleur at Brockhouse Cooper. It’s worth reading in conjunction with this earlier graph. (The 2014 Greek bond and 2006 Argentine bond are both five-year issues.)
Since we’ll admit the Greece-Argentina comparison is controversial, we’ll annotate the history represented on the chart a bit further if we may. There are… correspondences as the eurozone debates whether extra loans or maturity extensions are the next step for Greek debt.
A lot happened for Argentina in the same time Greek bonds have travelled from November 2010 to now, after all:
In January 2001 (i.e. before the chart begins) the IMF had already approved $40bn in loans to Argentina.
Here’s where it gets more familiar. By May 2001, as a condition of these IMF loans, Argentina organised the ‘voluntary’ extension of $29.5bn of domestic-held bonds maturing between 2001 and 2005. This was in the long-gone, pre-moral hazard days when the IMF used to make governments bail-in their private creditors before it would lend.
Anyway, post-maturity swap, you can see a lid being kept on yields to mid-July 2001. Although as late as September 2001, they were still at the level Greek yields have reached now with no maturity swapping. It was however the Rubicon for Argentine debt — and this is the point, in time under the bridge at least, Greece has reached.
Indeed as Argentina failed to make progress on reforms amid a long recession (again, familiar) the IMF made a second loan in September totalling $8bn. It was quite probably the worst mistake in the Fund’s history.
It’s all there in the yield — and the yield screamed and died once Argentina declared a debt moratorium in December 2001. The country’s banks had already been run on and the peso’s peg to the dollar was on the brink. Confirmation of default with a missed payment* early in 2002 began a four-year journey for private investors, before they got a chance to restructure their holdings (in return for a high haircut).
In short…
There’s a lot of misery in that one chart.
Now, Greece is probably getting its own second loan – right on time, it appears. (The money keeps rolling in…)
The point is, it (hopefully) won’t collapse in a disorderly default just two months later, like the Argentine government did. Unlike 2001′s IMF officials, even the dolts in Frankfurt will drop the austerity act and see that Greek yields are already higher than Argentina’s even after its May 2001 maturity swap. There is still space to allow an interim restructuring (for example, Roubini’s proposals) accordingly. Indeed surely the risk facing Greek bank capital argues for a restructuring before that risk gets worse.
Because it sure did in Argentina.
______________________
*Tiny credit default swap footnote by the way! There was Argentina CDS outstanding in 2001. It didn’t pay out during the May maturity extension (i.e. as a Restructuring Credit Event) but in January 2002, i.e. as a Failure to Pay Credit Event, it would appear. We think that’s really quite interesting if you’ve been watching the debate on Greece CDS payouts…
Related links:
Foreign creditors join the pyre – The Economist (2002)
Every which way but solved – The Economist (2011)
Europe is running a giant Ponzi scheme – Mario Biejer / FT
A (hard) Greek restructuring by the numbers – FT Alphaville