What is a Selective Default on Debt?
This morning, reports emerged from Europe that “selective default” was on the table for Greece.
A sovereign nation enters “selective default” when it elects to delay repayment of some of its financial obligations while fully honoring others.
The idea is that eventually everyone gets paid somehow. It’s just in a manner different than how it’s set up now.
The debt plan currently on the table would require investors to bear some of the burden of a Greek default, although other European nations would step in to guarantee the delayed repayments.
The term has been met with fear and confusion from all sides.
“The word selective default scares without reason,” said Greek Finance Minister Evangelos Venizelos on Tuesday. “It is not a real event, it is not default. It is an evaluation by the three familiar rating agencies.”
He also promised that a selective default would not activate credit default swaps for holders of European debt, because the country would not fully renege on its obligations.
In a draft of a current bailout proposal, EU leaders said that they delay in repayments would only be likely to last for a few days.
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