Vox
July 14, 2011
What to do about Greece? The face value of Greek sovereign debt is now around 150% of GDP and rising. This column proposes a debt buyback scheme and outlines how it could be achieved to the benefit of the whole of Europe.
The face value of Greece's sovereign debt is now roughly 150% of its GDP and on course to reach 161% by 2013. This is excessive by anyone’s standards. As the IMF and ECB have insisted, Greece must endure austerity to achieve a primary surplus in its fiscal accounts and thereby slowly reduce the debt-GDP ratio. But even with tough fiscal policy, the stock of debt will long remain much too high for Greece to sell new bonds in the private markets. Additional measures are needed to slash the face value of sovereign debt.Last week, one credit rating agency rejected the Eurozone’s preferred solution to the excessive debt stock – that is, sizeable “voluntary” private-sector involvement, meaning a long rollover at low interest rates of debt held by Eurozone private banks. Moody’s called this approach “selective default” – a label that would make it almost impossible for Greece to raise new private money for several years.
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