At Last, A Credible Threat of Default: Too Little-Too Late Eupdate?

At long last, Greece is starting to resemble a normal restructuring--you know, the kind where the debtor just might not pay if it does not get the relief it is asking for. Everyone else has done it this way, including the proverbial opposites, mean Argentina and nice Uruguay--but not Greece.

From the start, Europe's crisis management strategy has revolved around flatly denying the possibility of default within the Eurozone. This strategy has given us record-deep yet voluntary haircuts, bizzarre contortions to exempt central bank holdings, and mass confusion around CDS triggers. But even as it denied the possibility of nonpayment--thereby denying Greeks the smidgeon of agency debtors enjoy at the precipice--Europe failed to proffer an alternative "or else." As a result, creditors might be forgiven for wondering whether the alternative to haircuts just might be payment in full. Next to payment in full, the offer of English law in restructured bonds looks like a pathetic consolation prize (they will not survive the next restructuring anyway).

And so a bunch are threatening to hold out on the eve of Thursday's exchange deadline. This is not the long-lost evidence of creditor coordination problems to support calls for sovereign bankruptcy--presumably, countries that do not default do not file either--but rather proof that if you keep swearing you will pay, people will take you up on it.

Now at last, with 48 hours to go, Greece has (sort of) promised to default if the offer fails. With so much on the line, it feels like we are cutting it awfully close.