Wall Street Journal
February 2, 2011
The latest word out of a mountain hamlet in Switzerland suggests that Europe may finally be coming to grips with the need to restructure Greece's debt. The bad news is that the mooted restructuring seems likely to leave the European Central Bank with the tab.
According to various reports from Davos, the idea is that Greece's neighbors would lend Athens an additional €50 billion, and this money would be used to buy up outstanding Greek debt at market prices, currently about 70 cents on the euro of the face value of those bonds. The debt repurchase would allow Greece to lower its overall debt burden, which Greece certainly needs. At the same time, the maturity of Greece's bailout loans would be extended to 30 years from the current three years.
At first blush, the proposal is perplexing—officially, everyone insists Greece can pay its debts. (Unofficially, nobody believes it.) So why would investors voluntarily take a 30% haircut on bonds that are supposedly money-good?
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