2013 Buzz Word: DEFAULT

“The key word of 2013 will not be debt, growth or recession—it will be default. No one will want to use that word and will instead use terms like “forgiveness” and “realignment of future commitments.” Here are five predictions for how this story will play out.

Greek Debt Forgiveness

This is already being discussed with officials in Germany floating the idea that Greek debt held by EU governments and the ECB should be forgiven. This will mean that all the Greek debt held on the books of EU governments and the central bank will be worth just 25 cents in the euro, significantly reducing Greece’s debt burden as the coalition government battles to meet spending and revenue targets set by the so-called Troika. Once Greece gets this deal, others like Ireland, Portugal, Spain andItaly will begin to ask why they cannot get similar terms.

Unfunded Liabilities

Unfunded liabilities like public sector pensions will come under attack by policy makers across the world in 2013. Public sector pensions in Europe, generally quite generous, will have to be renegotiated if governments are serious about getting their budgets in order over the short, medium and in particular long-term. As we have seen at the city and state level in the United States, revenue collection at the local level has in many cases become a way of transferring taxes from workers to former police and fire officials. No government is likely to address this issue in 2013, but the debate will begin, and those who lose will take to the streets and strike to protect themselves against what is ultimately a default, no matter what you call it.

More Austerity”

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