April 18, 2011
To many private-sector economists, the idea that Greece eventually will have to default on its towering debts is almost a foregone conclusion. But the path has plenty of pitfalls.
Euro-zone nations that rescued Greece have told their citizens they wouldn't lose money. Enfeebled Greek banks hold Greek debt, so their losses might need to be patched by the government. And, paradoxically, a default would likely entail more international bailout money since Greece would be cut off from the financial-market funding it still needs to survive on its own.
"The time for easy solutions is long passed," says Sony Kapoor, managing director of Re-Define, a Brussels-based economic think tank.
Already-high market expectations of a default—or "restructuring," in polite parlance—have risen in recent days, pushing Greek bond yields higher. Greek and EU officials have lined up to reject the possibility.
"We do not see debt restructuring as an option," EU economy commissioner Olli Rehn said Thursday at the Brookings Institution in Washington. Lorenzo Bini Smaghi, a member of the European Central Bank's executive board, said in a newspaper interview Thursday that after a restructuring "the Greek economy would be on its knees."
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