Wall Street Journal
July 21, 2011
The European Central Bank (ECB) has taken an unwavering stance against any kind of Greek debt restructuring. While the central bank clearly has concerns about financial stability and its exposed balance sheet, it also seems to have a political agenda. It is critical to understand this agenda.
If debt restructuring is eschewed, there will continue to be a dramatic build-up of loans to Greece from official creditors—the rest of the euro zone and the International Monetary Fund. If this continues for an extended period, it could be a backdoor means of moving the region to a fiscal union, something that would make the central bank very comfortable.
Greece is unlikely to be able to access capital markets for a long time to come. Consequently, loans from official creditors will continue to increase at a rapid pace as the amount of market debt outstanding declines. If the policy approach of the past year were to continue, Greece would have virtually no market debt left by the end of the decade.
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