Three tracks to resolving Europe’s debt crisis

by Neil Irwin

Washington Post
September 27, 2011

Efforts to address the debt crisis buffeting Europe are moving on three parallel and related tracks. Each faces political and economic challenges.

Track 1: Executing the Greece bailout

Sept. 27: The Greek parliament is scheduled to vote on a property tax increase that is viewed as a referendum on whether the government has the ability to push through unpopular measures to reduce the nation’s budget deficits. It will be followed by other such tests, on cutting pensions and public jobs, in the coming weeks.

October: Greece is due to receive 8 billion euros from the International Monetary Fund and European governments, money the Greek government needs to keep paying salaries for public workers and other expenses. Before Greece can get the bailout check, government officials will discuss with the “troika”— the European Union, the IMF, and the European Central Bank — whether the government whether it has done enough to improve its public finances.

Months ahead: Negotiations are likely over the terms under which Greece would receive an additional 109 billion euros in bailout money. There could also be talks over restructuring what Greece owes investors. Greek officials need to determine the final terms of a deal with private investors, including European banks and hedge funds. This deal would involve a bond swap that would substantially reduce Greece’s cash needs in the next few years.

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