Financial Times
July 21, 2011
While the financial markets and economists were impressed with the size and generosity of official support for Greece, there was much less confidence that private investors will take enough of a hit to make its debt sustainable in the medium term.
The private debt exchange plan, based on a proposal from the Institute of International Finance, will relieve the short-term funding pressure on Greece by increasing the average maturity of its bonds from less than seven years to nearly 20, and by starting with a lower interest rate coupon which increases over time.
But the IIF itself estimates that the offer will involve a reduction in the net present value of private Greek debt of only 21 per cent. Most calculations of the necessary overall reduction are closer to 50 per cent, meaning that another, more substantial, restructuring will be required in the future unless there is an even more colossal transfer from other eurozone governments to Greece.
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