Wall Street Journal
May 18, 2011
Add another phrase to the lexicon of the euro-zone sovereign debt crisis: “Soft restructuring.” Some European officials have just started using it to describe how Greece might gather together its creditors and ask their blessing to be paid back later.
This harmonious process would involve the banks, pension funds, insurance companies and other investors that own Greek bonds agreeing to exchange them for debt with a later maturity. Greece would thus need less new financing in 2012 and the following five years, when it faces a cash crunch once €110 billion worth of rescue loans from euro-zone governments and the International Monetary Fund run out.
Why would creditors accept this offer? Not out of the goodness of their hearts. Usually the way this works is the creditors agree because they realize the company or country in question is at risk of defaulting, an outcome that could be avoided if they agree to extend maturities.
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