By: Barbara Zigah

All around the globe, anxious markets are waiting to find out how the Greek crisis will play out. With every day, comes another media report of dire economic news – this something that didn’t happen or that something which did. It is now all rushing toward a March dénouement, when some €14.5 billion worth of Greek sovereign bonds are due to mature. It will either culminate with a bang or a bust, though quite a few economists are sure it will be the latter.

Right now, the negotiations between the Greek government and their private bondholders is at an impasse of sorts. Greece’s private creditors say they cannot “voluntarily” accept any additional losses even as they now consider taking losses of as much as 70%. Some economists have expressed the opinion that even if they would agree to a 100% write-down, it would still be insufficient to remedy the Greece financial crisis.

Resolving the issue with the private bondholders is a must; when the Eurozone’s leadership last year agreed in principle to the second €130 billion bailout, it was with the caveat that the Greek government would be able to convince private bondholders to forgive 50% of Greece’s obligations, in nominal terms. The problem, however, is that the country’s economic prospects have since greatly deteriorated, meaning that their creditors, whether governments or private investors, will have to “contribute” much more than originally expected. And a caveat to that condition is that it must be a “voluntary” contribution, else a technical default clause will have been triggered.

At the same time, the Eurozone’s finance ministers and other key leaders are continuing their efforts to work out the terms and conditions of Greece’s second bailout, taking into consideration this latest setback with the private bondholders. It is incumbent upon the E.U. leadership to resolve the bailout plan’s terms, as well as to ensure that the March bond swap goes through; without both, the likelihood of a disorderly Greek default exponentially grows.

Words from the Wise

An advisor to Greece’s prime minister said that a disorderly default could collapse the Euro as the world knows it, because markets would be shaken to the core, believing that if the E.U. leadership “allowed” Greece to fail, then they would wonder which of the other fiscally-troubled members might next be “allowed” to fail.

The finance ministers of both France and Germany have said recently that they stand ready to support Greece in its efforts to halt the Greece financial crisis, provided that the Greek government continues to push through the promised reforms and commitments to target reductions of their budget deficit. The goal is for Greece to reach a maximum debt-to-GDP level of 120% by 2020. Whether or not they can reach it, given the greatly diminished growth outlook, is a bridge that the Greek government will have to cross when it comes to it.

The Greek government’s first hurdle is dead ahead and time is running out. But if Greece is able to survive through March, then there would be renewed hope – perhaps only short-lived, but hope nonetheless – for the Euro’s future.