Last week was another bad one for Greece. Markets are now increasingly convinced not only that Greece will default, but that it may happen before the European Stabilisation Mechanism comes into operation in 2013. But Greece might be reluctant to default imminently.

What’s more, despite Germany’s apparent willingness to allow a Greek debt restructuring, eurozone policymakers will be concerned that a default could have major financial and economic repercussions on other euro-zone economies. Accordingly, we think that a near-term default that results in a significant drop in Greek public debt is still fairly unlikely.