Government braces for selective default

Cabinet debates how to handle debt event as Venizelos accuses Samaras of misleading voters
For the first time since Greece’s credit crisis began, the Cabinet met on Thursday to discuss how the..
 government would manage the public impact of a selective default on its debt, a development which now seems inevitable.
Prime Minister George Papandreou told his ministers that they have to be properly briefed on the meaning and implications of a selective default, which is likely to come about as a result of the involvement of the private sector in the country’s second bailout....

Some ministers expressed concern that Finance Minister Evangelos Venizelos spoke publicly about a possible selective default when it is not yet clear how the private sector will come to Greece’s assistance. However, since help is likely to come in the form of extended bond maturities or lower interest rates, as well as a bond buyback scheme, it is almost certain that at least one of the three rating agencies will deem that Athens has, in part, defaulted on its debt.
Papandreou backed Venizelos’s handling of the issue and said it was important for the government to make it clear that being classified as being in selective default was not the same as Greece defaulting and going bankrupt. Venizelos said that it would not create problems for Greek banks either.
According to rating agency Standard & Poor’s, a debtor is in selective default when “payments may not be made on some financial obligations.” This, the government stresses, is not the same as a recognition that Greece cannot pay back any of its debts.
The interpretation of the term has gained utmost significance in terms of PASOK’s tussle with New Democracy over the handling of the economy. ND leader Antonis Samaras said on Wednesday that “default” was not a word in his party’s vocabulary. But Venizelos accused the conservative leader yesterday of trying to present to voters a lightening of Greece’s debt load as a total default.
“If some people choose to translate irresponsibly, in populist terms and for petty political reasons the term ‘selective default,’ I respond by stressing that it is not the same as a credit event, nor default or bankruptcy but a temporary rating of Greek bonds.”
Officials from the European Central Bank, the European Commission and private lenders met in Rome on Thursday to discuss a second rescue plan for Greece. European Union leaders are expected to meet on the same issue next week

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