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Victoria Mindova

Selective default is the assessment of credit rating agencies, it is not an actual default or activated CDS insurance market, said during an urgent press conference the Greek Finance Minister Evangelos Venizelos convened after the meeting of the finance ministers of the euro zone. "We are ready to do everything to ensure the control over the debt crisis," he said. The rating agencies said in the spring that they would interpret the "voluntary" participation of private investors in the rescheduling of the Greek foreign debt as a selective default if Europe and Greece resort to it.

Venizelos stressed that this option is still on the table and Brussels is considering 36 different ways how to technically include the suspension of payments on part of the Greek government bonds over the next three to five years. "We require economic and financial coverage of Greece, which is part of the financial and economic area of ​​Europe. We will receive this coverage either from the European Central Bank, or another type of political solution from the euro zone and other European institutions such as the European Financial Stability Facility (EFSF) ".

Venizelos stressed that the council of ministers in the euro area is considering also redrawing of the functions and the expansion of EFSF, without giving more explanations on the matter. If we have to read between the lines of the speech of the Greek Minister of Finance, it is clear that Greece is awaiting a selective default from September this year and private owners would prefer to take their money later than never. Germany and other European countries are not inclined to withdraw their proposal the bailout of Greece to include only EU countries and are willing to accept a possible "default" assessment by the credit rating agencies with the aim private pension funds and investment institutions to pay part of the price of today's crisis.

At the same time, this will make Greece painfully dependent on the European institutions, especially at a time when it became clear that the country is unable to cope with the austerity measures. Revenue collection has progressively decreased, while budget spending has not dropped with the planned pace. In this situation of profound instability, Venizelos said that Greece means what it says and promised that fiscal consolidation, structural changes and privatization program will be implemented in time. The bitter experience so far shows, however, that political promises rarely correspond to actual results. Therefore, the Greek Minister of Finance stressed that Europe will give its political support even in unforeseen circumstances.

In this sense, the worst scenario now that Greece is to pin to the stability facility for decades is better than the eventual leaving the euro zone and the unwanted return to the drachma. He stressed that Greece’s rescue is crucial for the euro area as a whole and this process would provide the frameworks within which the  EU countries should move in case of other crises awaiting even Spain and Portugal  behind the corner. As for the liquidity of the banking sector, Venizelos stressed that there would be no major problems, despite the isolation of Greek banks by capital markets.

A serious political protection of Greece by the EU and its institutions is necessary because the financial plan for the rescue of Greece involves the International Monetary Fund (IMF) too. The fifth tranche of the aid that is expected to be paid in a few days was approved by a political decision, because the state did not fulfill its obligations under the Memorandum. The IMF was not satisfied and according to economic analysts in Greece, the international institution has asked Europe to submit guarantees for the 12-month funding of the country in order to continue its participation in the bailout.