Reuters/New York Times
May 9, 2011
Restructuring Greece’s debt is both desirable and inevitable, despite insistence from European Union officials over the weekend that the idea is off the table. But restructuring could also cause mayhem throughout the euro zone — and global markets. Indeed, many investors and policy makers speak about a possible “Lehman moment” — a shock so severe that it would cause banking crises and domino bankruptcies throughout Europe.
The fears are genuine. But this should be an incentive for revisiting the lessons learned during the crisis created by the 2008 demise of Lehman Brothers so that, when Greece’s debts are restructured, the rest of the euro zone is able to withstand the fallout.
Greece’s debts are officially forecast to hit 159 percent of G.D.P. in 2012. Sustaining such a burden would require so much austerity that the economy would be crushed for years. The country isn’t about to run out of money tomorrow because it is supported by a 110-billion-euro program from the European Union and the International Monetary Fund. But the government is only financed until early next year, and will need to raise 27 billion euros in 2012.
European finance ministers are discussing ways of getting Greece over the hump. Ideas doing the rounds include making the bailout terms more generous, and providing extra cash. But there’s still logic in restructuring Athens’s debt soon. With every month that passes, more bailout money gets used to pay off private debt, helping those who lent to it foolishly at the expense of taxpayers in other countries.
So how can the E.U. prevent a restructuring becoming a Lehman moment?
More
No comments:
Post a Comment