Trichet's long game

Economist
June 13, 2011

Despite being almost alone in its hard-line opposition to any form of Greek debt restructuring, the European Central Bank looks set to win the current round of Greek bail-out negotiations. As my colleagues have noted, an informal and voluntary debt rollover won’t deal with Greece’s underlying insolvency, and may make a future restructuring more complicated. This can-kicking exercise will end in tears.

Delay does, however, affect the likely political consequences of a debt restructuring. Research from JPMorgan, highlighted by FT Alphaville over the weekend, shows how euro-zone states are increasingly responsible for Greek debt (directly or indirectly through the ECB) as private creditors' bonds mature and the bail-out tab rises. Future debt restructuring will be more costly for European states and fiscal integration more attractive.

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