April 20, 2011
At first sight, Greece’s debt crisis has taken another turn for the worse. Yields on its government bonds have soared, rising above 20% on two-year paper on April 18th. But what seems to be bad news may in fact be good.
Greek bond yields are spiking because European policymakers now seem to be acknowledging what this newspaper has long argued was inevitable: Greece’s debt will need to be restructured. Even Wolfgang Schäuble, Germany’s finance minister, appears to be open to the idea. The official line, admittedly, remains that restructuring is not an option; and the European Central Bank still has its head firmly in the sand. But the debate in Europe is finally shifting from how to avoid a Greek restructuring to how to do it (see article).
This is to be welcomed—but with a reservation: even as Europe’s leaders start to consider restructuring, there are worrying signs that they will shrink from doing it boldly enough. That is because the continent’s politicians are not chiefly motivated by the desire to cut Greece’s debt burden to a sustainable level. The Germans, in particular, have two concerns closer to home. The first is to minimise Greece’s need for more cash from German taxpayers: the current plan is for Greece to return to the markets next year, which is plainly implausible. The second is to protect German banks, many of which hold Greek bonds, which makes them reluctant to accept any debt write-down. These two concerns point to a modest “reprofiling”, which temporarily defers Greece’s debt payments but does not come close to restoring its solvency. Realisation would merely be postponed.
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See also
Παρουσίαση στα ελληνικά στο Βήμα
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