Vienna, Austria

Dodging a massive snowstorm in Montreal just 24 hours earlier, I’m glad to be in Vienna. The weather here is almost beach-like for this Canadian at minus two degrees centigrade and not a speck of snow anywhere.

Austria does have its share of debt, though, at roughly 68% of GDP. And some of its banks went hog-crazy in the 2000s by aggressively lending throughout the region. But its domestic real estate market never simmered to the point of being in a “bubble” and unemployment is just under 4%.

Austria recovered quickly from the late 2008 economic nosedive affecting most economies and continues to attract swaths of foreign capital as it remains an important hub for East and Central European trade.

A bold move by this country’s largest insurance carrier in late January set the tone for what might lie ahead in coming months as it pertains to sovereign debt.

Representing just one percent of its investment portfolio, Vienna Insurance Group (Vienna-VIG) made a bold move recently by marking down its holdings in sovereign Greek debt. That is the first time since the advent of the eurozone debt crisis that an investor has unilaterally written down its investment ahead of a possible default or restructuring of Greek debt.

VIG wrote down its investment in Greek government bonds by 25% last week, giving itself a haircut before any rescheduling has occurred. Many savvy investors, including PIMCO’s Mohamed El-Erian, and George Soros, believe a Greek and an Irish debt restructuring are inevitable.

A Greek default would hurt numerous eurozone banks and insurance companies; but VIG made the bold decision to bite the bullet, which will cost the insurance company somewhere in the neighborhood in the low tens of millions of euros. That represents less than one percent of the group’s assets.

This marks the first time a European financial entity has acknowledged that a restructuring might occur.

According to the Bank of International Settlements (BIS), German and French banks have the biggest exposure to Greek government debt at a combined $137 billion dollars.

For now, Greece and Ireland might avoid a default as the EU boosts the European Financial Stability Facility and delays the day of reckoning. Portugal, and possibly Spain, might also require some financial assistance.

Like the United States, Europe is just piling on more debt on top of massive levels of existing debt. That’s not the right long-term solution to address structural fiscal imbalances and debt burdens.