'Soft Debt Restructuring Cannot Solve Greece's Problems'

Spiegel
May 18, 2011

Euro-zone finance ministers broke a longstanding taboo on Tuesday when they admitted that Greece might need to restructure its debt. German commentators agree that a "soft" restructuring would be a step in the right direction, but that it would not be enough to resolve the crisis.

Over the course of the financial crisis and the ensuing euro crisis, many new terms have entered ordinary people's active vocabulary, from "toxic assets" to "collateralized debt obligations," to more recently, "haircut" in the context of creditors taking a loss on their investments.

Now a couple of new terms look set to enter the common vernacular -- "soft restructuring" and "re-profiling," both used by Luxembourg Prime Minister Jean-Claude Juncker on Tuesday to refer to restructuring Greece's public debt.

Juncker, who heads up the Euro group -- made up of the finance ministers of the 17 euro-zone member states -- said that a so-called "soft restructuring" or a "kind of re-profiling" of Greek debt may be possible, but insisted he was "strictly opposed" to a "large restructuring" of Greek debt.

European Commissioner for Economic and Monetary Affairs Olli Rehn seconded the idea, saying "a voluntary extension of loan maturities, a so-called re-profiling or rescheduling on a voluntary basis, could be examined."

A re-profiling or soft restructuring could involve Greece's creditors voluntarily swapping short-term debt for longer-dated bonds, effectively giving Athens more time to repay its loans. It is seen as a less drastic move than forcing debtors to accept a "hard" debt restructuring in the form of a so-called haircut, which would involve them receiving less that the full value of their bond holdings.

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