When is a default not a default?
Outside of wartime, serious governments don't default. And if they do, it's a seismic market event. That's why the European authorities will do everything to prevent Greece from going down that path.
But there are plenty of ways to lower a country's debt burden which stop short of a formal default. The question is whether the more benign, voluntary approaches to restructuring can be done quickly enough, or deliver enough relief to the hard-pressed Greeks.
Officials have been looking into this privately since at least the G20 Summit in Seoul; some would say, since the Greek bailout was announced just over a year ago. In fact, there has already been a restructuring of Greek debt, in the decision to lower the interest rate and lengthen the maturity on the bailout funds that Greece signed up for just over a year ago.
A coalition of 17
Now further market pressure and some enthusiastic German reporting has brought the discussions into the open, and made them a good deal more urgent.
David Cameron and Nick Clegg think they have trouble; they should consider what it would be like to be in a coalition of 17. You can see why the big players would try to get together privately on Friday to see if it was possible to agree the outlines of a solution for Greece - even at the cost of irritating the excluded countries and further riling the markets on the subject of Greece.
Did they come to a magic solution? No. But they reconcile themselves to two basic realities - which many in the markets would consider the blindingly obvious.
First, Greece will not be able to go back to the traditional sovereign debt market in the second quarter of 2012, as previously hoped. Second, and most difficult for the Germans, the Greeks are going to need more official support, with or without any voluntary restructuring - or "re-profiling" - of shorter term Greek government bonds which are held by the private sector.
Re-profiling would mean the principal (the initial amount that was borrowed) would remain the same, but the maturity is extended by, say, 5 years. In theory, investors agree to the exchange because the net present value stays the same.
These solutions can work - for example, Uruguay pulled it off, with not much trouble, in 2003. But most of the holders of this debt are not indifferent to the maturity of the debt they hold, or the risk of further restructuring down the road if they continue to hold Greek bonds.
You'd probably have to offer various carrots for them to sign up, for example exchanging the debt at a market premium. You'd also have to be fairly confident that this would not constitute a "credit event" for the purposes of credit default swaps and other contracts which are entered into to insure against - or more likely speculate on - a Greek default.
In other words, such voluntary approaches could work for Greece - but they would take time, and - crucially, from the bondholder's perspective - they wouldn't necessarily deliver enough relief to prevent the government from coming back for more.
Three options for Greece
Realistically, that leaves three options for lowering the Greek government's short-term debt problem:
- further successful privatisation of assets by the Greek government (over and above the very large asset sales already included in the IMF programme, on which the government has made limited progress);
- further official support from European partners, including further "re-profiling" of official loans;
- and/or involuntary restructuring of private debt, including, possibly, an outright default.
On recent performance, the first of these, which involves more heroic effort by the Greek government, in an economy in which it's far from clear what public assets are worth - seems the least likely, at least in the short term. The question is whether fear of the third possibility - a disorderly repudiation of the Greek government's obligations - can induce the German coalition to support the second option, which is yet more official support.
On the basis of the past year, you have to assume that the Germans will sign up to giving Greece more help. After all, that's what they've done every other time so far such a choice has presented itself.
But it would help them if the European Financial Stability Facility (EFSF) could provide the help - for example, by buying Greek debt directly when it is issued next year. That would be deeply preferable to the Germans, since it would avoid the need to go once again to the parliament, and the German taxpayer.
Will that be agreed by next week's Ecofin meeting? Perhaps. But the odds are against it.
Here are too many details to be sorted out - and face-saving conditions and caveats to be devised by all involved. However, the consensus coming out of Friday's meeting seems to have been that something would have to be sorted out before the IMF completes its next review of the Greek programme, in the middle of June.
No-one thinks that will be the end of the Greek saga. But it would have the great advantage - common to all past "solutions" to the Eurozone crisis - of delaying the day of market reckoning a little longer.