News out this AM about a new plan to resolve the European debt crisis that scratches two of the most important itches: it’s a lot bigger and it includes Greek restructuring.
“…the plan is expected to involve a 50 percent write-down of Greece’s huge government debt, while increasing the size of the euro zone bailout fund to $2.7 trillion.”
Though details are sketchy and this too could fizzle, it reflects a better understanding of what might resolve the rolling crisis, especially compared to recent statements by European policy makers that essentially argue “we can neither increase the size of the fund nor utter the D word re Greece.”
As I stressed here, I don’t take the move toward Greek debt restructuring at all lightly, but there is a difference between insolvency and illiquidity, and this new plan appears to recognize that. And while none of this is good for markets, what’s worse is the slow bleed of asset deterioration coupled with the uncertainty of if-and-when a default will occur. An orderly, planned restructuring, where investors know up front the extent of their haircuts is a lot better than a Lehman.
The thing to watch for now is whether the ditherers and thumb-twiddlers scuttle this new idea or get to work on making it real.