Kicking The Greek Can

by Richard Barley

Wall Street Journal
June 3, 2011

If the Greek can is to be kicked down the road, it had better be a big kick. The original €110 billion ($159.40 billion) bailout was flawed because it assumed Greece would return to the market in 2012 to issue between €25 billion and €30 billion of bonds. Once it became clear that a major funding gap was looming, a fresh crisis was triggered. The last thing the euro zone needs is a repeat of this problem next spring. Time is a valuable thing to buy.

The risk is that whatever solution is stitched up this month will only provide Greece with funding until mid-2013, when the current International Monetary Fund program is due to end and the new permanent European Stability Mechanism, under which debt restructuring is a possibility, is introduced. If so, the likelihood is that the euro zone will face another crisis in 2012, as a funding gap would again be only a year away.

What is needed is a longer, larger package. Fitch, for one pegs the funding need to the end of 2014 at between €90 billion and €100 billion. True, this would raise more political hackles. But not all of the money would come from the IMF and euro zone. Privatizations can raise cash, and a version of the Vienna Initiative—the successful effort to get banks to retain exposure to Eastern Europe in early 2009, at the height of the global financial crisis—can help involve private-sector creditors.

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