New York Times
February 11, 2011
Concerns that a European country will default on its debt have eased for now as politicians work to shore up the euro monetary union. Much of their energy is being poured into creating a permanent system to handle sovereign debt troubles that occur after 2013.
Yet few believe that the countries hit hardest by the financial crisis will be able to avoid what is politely being called a debt restructuring.
A recent paper from the Organization for Economic Cooperation and Development examined market expectations and found that as 2013 nears, investors put the chance that Greece’s debt will need restructuring at about 40 percent and Ireland’s at about 30 percent. The timing would be just before the European Union’s new debt crisis mechanism kicked in, and when bailout packages for the two countries are set to expire.
According to the authors, Adrian Blundell-Wignall, an O.E.C.D. special adviser on financial markets, and Patrick Slovik, an economist, a country is more likely to restructure if it has already done much of the easy cost-cutting but faces political challenges in getting its deficit closer toward zero, even as the cost of servicing the debt increases.
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