Wall Street Journal
April 26, 2011
The timing of a debt restructuring by one of the three euro-zone members financially reliant upon the European Union and the International Monetary Fund is likely to have profound implications for the rest of the currency area, and its survival.
The earlier a restructuring occurs, the more it will hurt euro-zone banks. But the later it occurs, the more conscious taxpayers in creditor nations will be of giving help to another country. And that will provide a major test of the currency area's cohesiveness.
As time passes, the debts of the Greek, Irish and soon the Portuguese governments are being transferred to the public from the private sector. Private investors aren't willing to fund these governments, so as bonds mature, they are taking their money and putting it elsewhere. The EU and IMF are replacing those funds, with the result that as the months go by, their share of the three governments' overall debt rises.
What this means is that if any of the bailout three were to restructure now, private-sector investors could be asked for a write-down of around 50%—by no means a comfortable conversation.
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