February 8, 2011
A leading Brussels think tank has recommended that Greece should restructure its public debt as soon as possible, and that this should be one of the main elements of a comprehensive response to the eurozone crisis to be agreed by European Union leaders when they meet next month.
In a policy brief published on Monday, the Bruegel think tank argues that Greece is “clearly on the verge of insolvency” and that the swift restructuring of its debt, with creditors accepting a 30 percent “haircut,” should form part of a three-pronged strategy that includes the strengthening of the eurozone banking system and policies to foster greater growth in member states with weak economies.
The Greek government has consistently denied that it intends to restructure its debt but Bruegel’s most optimistic forecast indicates that with Greece’s debt-to-GDP ratio scheduled to reach 150 percent this year, an adjustment of “frightening magnitude” in the country’s growth rate and cost of borrowing would be needed to avoid restructuring.
“If you look at realistic scenarios and at history, then it’s very unlikely that Greece can avoid restructuring its debt,” Zsolt Darvas, one of the report’s co-authors, told Kathimerini English Edition. “It would be a very sad end to the first decade of the euro area but if something is not sustainable and you try to muddle through then the outcome could be worse for everyone involved, including the Greek government, the Greek people, Greek banks and creditors.
“So it would be preferable to have a solution that is still difficult but in which most players would benefit.”
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Read the Policy Brief
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