The Battle of the Bonds

LONDON – Everyone knows that Greece will default on its external debt. The only question concerns the best way to arrange it so that no one really understands that Greece is actually defaulting.

On this topic, there is no shortage of expert plans – among them bond buy-backs, bond swaps, and the creation of Eurobonds, a European version of the “Brady” bonds issued by Latin American countries that defaulted in the 1980’s. What all such schemes amount to is piling one lot of bonds on top of another in an attempt to square the circle of Greece’s inability to pay, and to minimize the losses faced by its creditors – mostly European banks.

Every week, a preposterous coterie of European bankers and finance ministers drags itself from one capital to another to discuss which default/restructuring plan to adopt. Meanwhile, Greece’s agony continues, and the “markets” wait to swoop down on Portugal, Ireland, Italy, and Spain.

No one who is not well versed in financial legerdemain can make much sense of this battle of the bonds. But behind it lie two moral attitudes, which are much easier to grasp.