Greece should just default

From the WSJ (article here: WSJ Greece 1-16:

Deadlocked Greek debt-rescheduling negotiations threaten to delay key talks for a critical bailout package set for early next week, with officials warning of a rising risk of default unless a breakthrough comes soon.

A senior delegation from the International Monetary Fund, the European Union and the European Central Bank are to arrive in Athens Friday to discuss Greece's second rescue program. Equally important is a meeting of European finance ministers in Brussels next Monday to formulate their portion of the next Greek bailout, set in October at €130 billion ($164.8 billion).

Both sets of talks hinge on Greece and its private-sector creditors reaching an initial agreement this week to reduce the country's debt to them by half. Talks were suspended Friday after disagreement over the rates of interest Athens would pay on Greek debt holdings. Attention is now focused on overtures to resume negotiations as early as Wednesday, according to Greek officials.

Talks between the Greek government and the Institute of International Finance, which represents the private creditors, broke down on Friday over the coupon on longer-term new bonds that Greece will issue in exchange for the old bonds held by the banks. The private sector wouldn't accept a coupon of 4% on the new bonds, much lower than expected.

The goal of the talks with the private sector is to slice €103 billion from the Greek government's €350 billion in debt without any signs of coercion. An agreement in principle would set up a formal debt offer during the week of Feb. 6-10, with the final debt exchange expected to be completed by the end of February.

The sticking point remains the interest rate stitched to the bond swap. Greece says it can't afford to pay more than a 4.5% average coupon on the new bonds, while sovereign creditors such as Germany and the IMF want below 4% to make sure Greece can afford it and to avoid future shortfalls. The IIF, however, wants more than 5%.

 Greece should just default.  Yes, it will be painful, yes the ramifications will ripple globally, but this dog and pony show is not working.  The whole notion of gaming the CDS system by a "voluntary" swap ultimately will not work.  Add to this the notion that austerity will help and what you have is a recipe for ultimate failure.