Analysis

Greece/EU: Investors Now Expect a Greek Default
EU Finance Ministers met in Brussels on January 23-24 to discuss the Greek debt crisis but failed to reach an agreement. Some members wanted Greek political parties to commit to economic reforms in writing before Athens could receive a second bailout. Others piled pressure on Greece to forge ahead with structural reforms and demanded that the country's private creditors make sacrifices by accepting a massive debt write-down. (GEORGES GOBET/AFP/Getty Images)
January 25, 2012
| Economics
| Europe
Summary
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The failure of a two-day meeting of finance ministers in Brussels this week to reach a deal to restructure Greece’s debt reinforces the views of investors that Athens will not make its March 20 bond payment. Even if an agreement is cobbled together, investors are already internalizing that Greece will essentially be in default. The International Monetary Fund (IMF) warned that not just Europe, but the entire world economy, is moving into a “danger zone” because of the European debt crisis.

With talks on Greece essentially deadlocked at the moment, it is unlikely that global markets will stabilize before mid-March at the earliest, assuming a new Greek bailout deal can be reached.  Like the series of previous EU debt agreements, any new short-term deal will only gloss over long-term structural problems plaguing the eurozone. In this analysis, the prospects for a deal are explored as well as how investors will likely respond.

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