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Structured Default

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  • 15-10-2011 2:35pm
    #1
    chunkylover4
    Registered Users Posts: 243 ✭✭


    Would anybody be able to explain the mechanisms for a structured default, and what some of the reprecussion or benefits would be to an economy?


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    #2
    later12
    Closed Accounts Posts: 11,299 ✭✭✭✭later12


    When most people talk about a structured default in a European context, they are talking about one which is not unilateral and instead involves the co-operation of the European authorities and the International Monetary Fund with the defaulting country.

    It doesn't necessarily have to include direct co-operation with the banking system, but provisions would have to be made by the authorities to build some sort of cushioning structure that would prevent the European banking system from a serious financial disclocation - i.e. a capital buffer in the form of bank recapitalisation.

    A messy default - which some commentators liken to a european civil war - would be Greece unilaterally defaulting, and the rest of Europe not having any capital buffer in place to deal with the consequences to monetary stability, the banking industry and government finances in other vulnerable jurisdictions.


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