Greek banks are big holders of sovereign debt; a haircut of a third to a half would immediately trigger another banking crisis in Greece and turn an already catastrophic flight of capital into a rout. The banking system would very quickly collapse. A restructuring would also collapse the country’s pensions system, as the asset of choice among Greek pension schemes is Greek sovereign debt. Pensions too would have to be cut severely.It's easy to write the words "collapse the country’s pensions system" it's another to see that collapse up close and personal.
Yet by common agreement, Greece is already at the point of debt unsustainability; debts are so high that it’s going to prove not just difficult and painful, but virtually impossible to get them back onto a sustainable footing. The interest bill on the debt alone is just too big for the economy to be able to cope with. The point of unsustainability is generally acknowledged to be around 150pc of GDP. As you can see ... Greece is already at that point.
I was in Russia in January of 1998, just a few years after the fall of communism. Socialism's end in Russia looked a lot like socialism's end in Greece will look like. The phrase took on it's past tense, "the country’s pensions system had collapsed." Desperate elderly were on the streets, begging for handouts. One could only imagine elderly invalids starving in their rooms, unable to get out to beg. I had a little cash and was able to give some away, but you knew it wasn't anything like what was needed.
I remember one old woman I met in the market on Arbat Street, speckled with sores and covered in ratty clothing. She begged despairingly and was clearly on the edge of giving up. I didn't want to touch her, she was so filthy. I went into my pocket and pulled out about $40 of Rubles and gave it to her, careful not to let our skin touch. She took it and I began to walk away. Out of the corner of my eye I saw her look at the money and recognize how much it was. She ran to me, grabbed my arm and fell down on her knees, kissing my hand over and over again, crying out thanks in Russian. We both had tears in her eyes and all I could say was, "God bless you, Mother."
That was the end stage of socialist compassion. That was what "collapse the country’s pensions system" looked like once it had happened. There was nothing kind or charitable about it and the only thing it's proponents had left was their smug self-assurance that they had been "compassionate."