What Europe's coming debt default will look like

I’m not sure why everyone thought comments the other day from the German Finance minister, Wolfgang Schäuble, to the effect that Greece may eventually face a sovereign debt restructuring, were such a revelation. This is in fact only a statement of the blindingly obvious, has been apparent in the market price of Greek sovereign debt for more than a year now, and was in any case implicit in the statement issued after the European Council meeting of March 24-25, when ministers said restructuring would be a pre-condition to borrowing from the European Stability Mechanism if debt was judged to be on an unsustainable path.

Even so, combined with the latest Moody’s downgrade on Friday of Irish sovereign debt, his comments have sparked a fresh round of jitters in markets, and led some commentators to think an act of default among the peripheral eurozone economies is imminent. I don’t doubt that certainly Greece, and possibly Ireland and Portugal will eventually have to restructure, but here’s why it’s not going to happen any time soon.

Read the rest here.

I think the author is underestimating the speed with which bond prices can collapse irretrievably once the markets lose confidence in them.