May 9, 2011
Former European Central Bank Vice President Lucas Papademos, who also used to head Greece’s central bank, spoke to the Journal’s Brian Blackstone hours after S&P’s latest Greek debt downgrade about what Athens must do to address its debt crisis, the possibility of maturity extensions with public and private creditors, and whether haircuts should be avoided.
On what Greek government officials must do:
The key ingredient of any solution to the Greek debt crisis is the announcement of a convincing medium-term fiscal consolidation program which incorporates a sizeable and credible privatization plan.
The implementation of medium-term fiscal policy and reform measures would be more credible in the eyes of the market and for the Greek public if it was supported by a majority of political parties.
It is essential that the envisaged reforms be implemented fully and in a timely manner to increase market competition, improve competitiveness and underpin the economic recovery.
Haircuts on debtholders:
Any funding pressures over the next few years will have to be addressed but without a restructuring of the debt involving haircut losses for investors.
I do not underestimate the magnitude of the funding requirements and the arguments made by others, but I am convinced that debt restructuring should be avoided.
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