Why Greece Would Rather Sell Islands than Default

As reports resurface that Greece is considering selling leases to some of its islands to pay down debt, fears are growing that the euro zone member could restructure its debt over the summer months.

Greek officials denied the country was seeking to sell some islands to get out of debt, according to Dow Jones.

Worries that Greece will default have rippled through markets, causing a crisis of confidence in some euro zone members' ability to pay their debts.

Swimming pool in Greece
Andrew Holt | Photographer's Choice | Getty Images
Swimming pool in Greece

One US economist told CNBC earlier this month that he feared a Greek default as early as August, as the country may not be able to fulfill its austerity pledges to get a new installment of a joint loan from the International Monetary Fund and the European Union.

But other analysts told CNBC that this will simply not be the case.

It is possible that Athens will restructure within two or three years, but certainly not over the summer, Giles Keating, the Head of research at Credit Suisse, said.

"Greece is a one-off case, but if they did restructure now it would have huge knock-on effects for the European banking industry and Germany's Landesbanken in particular," Keating said.

Landesbanken are state-owned German banks, regionally organized and generally serving medium to large-sized companies in their regions, as well as multinationals. They also offer private banking services and capital markets products to various customers.

The focus of the market is Spain, which is "far more solid than Greece but a big concern nonetheless," according to Keating.

German Banks

Alistair Newton, senior political analyst at Nomura, agreed that there will be no Greek restructuring this summer.

"The recent intervention in the Greek economy by the EU and IMF was not a bailout of Greece but a bailout of the German Landsbanken," Newton said.

"The reason Greece will not restructure debt this summer is that others would then consider following suit. Why would Italy, Spain or even Belgium not follow suit if Greece goes?"

"I have just returned from Germany and found little appetite for publishing stress tests on the Landsbanken," Newton added.

Greek credit default swaps hit a new record high Thursday, leading investors to question whether a default is on the way.

But Andre de Silva, deputy head of fixed income strategy at HSBC, said that this may have more to do with index changes.

"In terms of the record levels in CDS yesterday, I think it is more associated with index changes with the downgrade by Moody’s earlier on in terms of Ba1," he said.

"Ultimately, by the end of this month that leaves exiting of various indices, so this means some related distortions."