Little alternative to official sector involvement

Article Highlights

  • With IMF & EU backing, the Greek gov. wrote down the present value of its privately held government debt by 74%.

    Tweet This

  • Greece’s privately held debt at present amounts to only 60 billion euros, or 1/6 of the Greek government’s overall debt.

    Tweet This

  • A further problem with privately owned debt buybacks is that such buybacks need to be financed.

    Tweet This

Sir, Your editorial "The self-defeating Greek rescue policy" (November 3) did a very useful service in emphasising how unsustainable its public finances are and how desperately Athens needs debt restructuring to help extricate the country from its destructive downward economic spiral. However, it exaggerates the contribution that a further squeeze of privately held Greek sovereign debt can make in that process. Earlier this year, with International Monetary Fund and EU backing, the Greek government wrote down the present value of its privately held government debt by 74 per cent. As a result, Greece's privately held debt at present amounts to only €60bn, or about one-sixth of the Greek government's overall debt. This very much limits the contribution that even a successful private sector debt buyback programme can make to reducing Greece's public debt ratio from its currently expected peak of 189 per cent of gross domestic product in 2013 to the IMF-EU's unambitious target of about 120 per cent by 2020.

A further problem with privately owned debt buybacks is that such buybacks need to be financed. This would necessarily increase the Greek government's immediate borrowing requirement at a time when there is already strong resistance to a third bailout package.

These considerations would suggest that there is little realistic alternative to the sort of official sector involvement for which the IMF to its credit is now pushing. If we should have learnt one lesson from the past, it is that delaying such official sector involvement will only make Greece's economic problems even more intractable.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Desmond
Lachman
  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
    Email: dlachman@aei.org
  • Assistant Info

    Name: Emma Bennett
    Phone: 202.862.5862
    Email: emma.bennett@aei.org

What's new on AEI

image Recovering from tax time blues
image 10 welfare reform lessons
image Let HHS nominee Sylvia Burwell explain Obamacare lie
image Why bold ideas backfire in politics
AEI on Facebook
Events Calendar
  • 14
    MON
  • 15
    TUE
  • 16
    WED
  • 17
    THU
  • 18
    FRI
Wednesday, April 16, 2014 | 10:00 a.m. – 11:00 a.m.
Calling treason by its name: A conversation with Liam Fox

Join us at AEI as the Right Honorable Liam Fox sits down with Marc Thiessen to discuss and debate whether America’s intelligence agencies have infringed on the personal privacy of US citizens.

Event Registration is Closed
Thursday, April 17, 2014 | 4:00 p.m. – 5:00 p.m.
The curmudgeon's guide to getting ahead

How can young people succeed in workplaces dominated by curmudgeons who are judging their every move? At this AEI book event, bestselling author and social scientist Charles Murray will offer indispensable advice for navigating the workplace, getting ahead, and living a fulfilling life.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.