Back-door Debt Restructuring On The Cards For Greece

Introduction

A back-door debt restructuring is in the cards for Greece; it  will require some sacrifice of national sovereignty and more sacrifice, that is austerity, from the people of Greece

Open Europe reports: It is widely reported that a deal on restructuring Greek debt could be imminent with EU officials in Athens to discuss the issue. The scheme being discussed is three pronged: firstly it would see Greece borrow another €50bn from the European Financial Stability Facility. Secondly it would see Greece use the EFSF to buy back bonds at between 65% – 75% of their nominal value from the ECB and private bondholders. Thirdly the plan would see the maturity of the bail-out loans extended by 30 years. In return, Greece would need to impose further austerity measures, specifically introducing a cap on its budget deficit into its constitution. If adopted the scheme is expected to re-profile two thirds of Greece’s €330bn debt by the end of the year. It has been compared to the Brady plan which rescued Latin America from bankruptcy in the 1980s.

Speaking at the World Economic Forum in Davos, Switzerland, on Friday, Greek Finance Minister George Papaconstantinou confirmed that informal talks are underway to find ways to reduce Greece’s debt burden. The FT reports that some IMF and EU officials support Portugal being pushed into seeking a bail-out. Die Welt notes that the Italian government is holding up discussions on the new Stability Pact, as they do not agree on setting public debt limits at 60% of GDP.

Over the weekend Der Spiegel reported on the ‘pact for competitiveness’ which German Chancellor Angela Merkel is set to propose to eurozone leaders at the Summit on Friday, including increase of retirement ages across Europe, harmonisation of corporate tax rates and the introduction of a debt brake into all eurozone members’ national constitutions. Bloomberg suggests that Merkel will ask for this in return for an increase in the eurozone bail-out fund.
Handelsblatt quotes government sources saying that the plan still needs to be agreed upon with the coalition partner FDP. On his Coulisses de Bruxelles blog, Jean Quatremer argues “the French have already showed opposition to a pension age of 62 years; they will detest retiring at 67”. FT Deutschland and Handelsblatt report that the ECB is keeping interest rates low for fear of harming the weaker eurozone members or destabilising their weak banking sectors, with inflation fear in Germany as a result.

A recent poll conducted by the Economist Intelligence Unit and commissioned by RBC Capital Markets shows that more than four out of five senior executives, or 85%, believe that there is a chance of one or more countries leaving the eurozone in the next three years, while two in three, or 60%, said there was a chance the eurozone would break-up over the next three years.
WSJ EUobserver Spiegel Coulisses de Bruxelles Guardian FT FT 2 FT 3 FTfm FT 4 Jornal de Negocios Les Echos Reuters Expansion Handelsblatt Coulisses de Bruxelles 2 FT Deutschland Welt Les Echos 2 Euractiv France 2 To Vima Times 2 EurActiv EurActiv 2 FT Deutschland FT Brussels Blog European Voice AFP Euractiv France

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