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Daily View: What now for Greece's debt?

Clare Spencer | 09:09 UK time, Wednesday, 11 May 2011

Commentators discuss talk of a new rescue package for debt-laden Greece.

In the Financial Times Martin Wolf thinks he has worked out the mentality that led to loan defaults in the eurozone:

"A story is told of a man sentenced by his king to death. The latter tells him that he can keep his life if he teaches the monarch's horse to talk within a year. The condemned man agrees. Asked why he did so, he answers that anything might happen: the king might die; he might die; and the horse might learn to talk.
"This has been the eurozone's approach to the fiscal crises that have engulfed Greece, Ireland and Portugal, and threaten other member states. Policymakers have decided to play for time in the hope that the countries in difficulty will restore their creditworthiness. So far, this effort has failed: the cost of borrowing has risen, not fallen. In the case of Greece, the first of the countries to receive help, the chances of renewed access to private lending on terms that the country can afford are negligible. But postponing the day of reckoning will not make the Greek predicament better: on the contrary, it will merely make the debt restructuring more painful when it comes."

The Guardian's editorial predicts, in a depressed tone, that the EU will continue along the same lines with Greece and instead of restructuring their loans will "muddle through" with more loans they may default on:

"The way to sort out a country's economic problems is typically not to give it a whacking great loan at a high price and expect it to pay it back by making huge spending cuts. That does not allow for the country to make extra money (through growth that leads to higher tax revenues). Only Tony Soprano would call this an economic policy. Certainly financial markets do not rate it much - which is why they are continuing to talk about the possibility of Athens defaulting on its debt. Those infamous credit-rating agencies don't think the plan amounts to much either, which is why they keep downgrading Greece's sovereign debt. Yet this is precisely what the single-currency club is doing to Greece - and Ireland and Portugal."

Michael Shuman explains in Time why Greece's debt crisis is significant globally:

"Simply, Greece might become a perpetual burden on the wealthier euro zone governments. That's not good for anyone. Politically, it would be extremely difficult for elected leaders in Berlin and elsewhere to continue to justify shovelling more and more money to save Greece. And with Greece's fate continually uncertain, investors would remain nervous about other weak euro zone nations as well, keeping debt crises alive across the periphery.
So what's the solution? In more than a year of covering the euro debt crisis, I don't recall speaking to anyone involved in European finance or economics who believed Greece could avoid a debt restructuring."

Hamish McRae says in the Independent that the original bail-out didn't work and instead of "playing the blame game" he gives some suggested solutions:

"That has not happened. Indeed, things have gone backwards, with 10-year borrowing yields at more than 15 per cent, more than double the level of a year ago. Now you can play the blame game if you want to, but that does not help. I am not saying it does not matter who is right and who is wrong; that would be absurd. But the plain fact is that the original bailout has failed, leaving two broad options. One is for the other eurozone countries to lend Greece more money and hope that in another couple of years there will be enough growth in the economy to stop the debts rising and for there to be some hope the country can gradually start to repay. The other is to agree that the debts cannot ever be repaid at their face value and for Greece to repay, say, only 50 cents in every euro. The first would be a refinancing; the second a default. "

Chairman of the True Finn Party in Finland Tomi Soini is sceptical in the Wall Street Journal about who actually benefits from bail-outs:

"The recipient states did not want such 'help,' not this way. The natural option for them was to admit insolvency and let failed private lenders, wherever they were based, eat their losses.
"That was not to be. Ireland was forced to take the money. The same happened to Portugal.
"Why did the Brussels-Frankfurt extortion racket force these countries to accept the money along with 'recovery' plans that would inevitably fail? Because they needed to please the tax-guzzling banks, which might otherwise refuse to turn up at the next Spanish, Belgian, Italian or even French bond auction."

In the Times Anatole Kaletsky explains why he thinks restructuring the debt is not going to happen:

"Why do Europe's politicians and central bankers refuse even to think about debt restructuring and instead continue to lend money to Greece, Ireland and Portugal that simply goes to repay their private creditors?
"Apart from the fear of triggering a Lehman-style banking meltdown - a threat that could easily be averted by creating a pan-European financial guarantee fund much smaller than the bailouts now under way - Europe's central bankers have a vested interest in spreading terror about the very idea of restructuring. The ECB itself is now by far the biggest holder of Greek, Irish and Portuguese bonds and would suffer enormous losses if their value were reduced. In addition to the €80 billion that it owns outright, the bank holds more than €500 billion of these toxic bonds as collateral against its loans to Irish, Greek and Portuguese banks. Since most of these banks would become insolvent in a big debt restructuring, the ECB would be left with hundreds of billions of euros of bust government bonds. With total capital of only 11 billion euros, the ECB itself would be bankrupt unless European governments provided a huge bailout."

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