May 10, 2011
Citigroup Inc. Chief Economist Willem Buiter said that extending the maturities of Greek debt won’t solve the country’s underlying solvency problem.
“Extension of maturities is of course the final option that would allow them at least to get over the funding gap in 2012,” he said in an interview with Ken Prewitt on Bloomberg radio from Edinburgh. “It doesn’t solve the underlying solvency problem of the Greek sovereign.”
Standard & Poor’s yesterday cut the country’s debt rating two notches to B, citing the likelihood that Greece may need to restructure its debt. Euro-region officials said after an unscheduled May 6 meeting in Luxembourg that Greece needs “a further adjustment program.”
“It’s clear that Greece will have to find money somewhere in a hurry,” said Buiter. Greece “can’t get it in the market, so we either need a new package, an extension of the existing package, or rapid privatization of assets.”
German Chancellor Angela Merkel today refused to commit to more aid for Greece, saying that it is still too early to decide whether the Greek government will need more financial help to overcome the debt crisis.
“The consent has to be unanimous so it’s going to be very, very difficult” to get another bailout, Buiter said. “It’s an investment of reputational capital by politicians. It doesn’t really make a lot of sense as you really are lending to an entity that’s insolvent.”
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