Too early for Greek debt restructuring
By Piero Ghezzi
Published: November 3 2010 17:03 | Last updated: November 3 2010 17:03
Greece’s public debt dynamics may be on a knife-edge but it is still too early to contemplate a pre-emptive restructuring, says Piero Ghezzi, head of economics at Barclays Capital.
He points out Greece is outperforming its fiscal targets and says it now poses less of a contagion risk to other eurozone peripheral nations – but acknowledges even small deviations in the country’s fiscal or macroeconomic outlook could swiftly disrupt sustainability.
“This debt-dynamics fragility explains to some extent why yields on Greek government bonds have remained stubbornly high.”
However, he argues an orderly debt restructuring would only make sense when other options have been exhausted.
“Significant unknowns still exist about Greece’s ability to continue implementing its fiscal adjustment and its ability to grow. Until those are clarified, it is not possible to be categorical about the solvency of the country.”
Implicit in Mr Ghezzi’s assessment is that any restructuring would be orderly as it would be backed by EU/IMF. “This is crucial. If the alternative to a moderate restructuring today is a messy default in the future, the advantages of doing something now increase. But we don’t think that trade-off exists.
“By waiting, Greece is not making the problem worse, as it is undertaking a major part of the fiscal adjustment that it would need to make anyway.”
(Financial Times)