Default, dear Yanis, is in our stars
Greece’s twenty-year maturity debt is trading at half its face value. That simply means that the market places a very high probability on Greek default.
Asia Unhedged thinks Greece ought to get it over with: leave the Euro, return to the drachma, and convert all bank assets and liabilities into the new currency wherever the market settles for the new currency. That almost certainly means a devaluation by a bit more than 50%, which explains why Greece’s dollar-denominated debt is trading at half of face value.
Countries that can’t pay their debts, and can’t tax revenues (because people refuse to pay taxes) need to tax wealth. The worst way to tax wealth is to devalue the currency, which makes everyone poorer except debtors. Since the government is the biggest debtor, it gains. But because the Greeks do not want to pay taxes and want the government to employ more than a fifth of its workforce (vs. 6.5% in Singapore), the worst way is the only way.
Most Greek debt is held by official institutions and a few mutual funds. None of it is held with leverage. Grexit would be an object lesson to Italy and Spain. Kill the chicken and let the monkey watch, we say in Asia.