Greece should restructure debt now-Bruegel think-tank
Mon Jan 24, 2011 12:08pm EST
* Influential think tank says Greek restructuring inevitable
* Costs of restructuring get heavier if delayed
* Think-tank's research often reflected in
euro zone policy
By
Jan Strupczewski
BRUSSELS, Jan 24 (Reuters) -
Greece's debt burden is so large that Athens will not be able to service it without a restructuring and the sooner that happens, the smaller the loss for investors would be, researchers from the influential Bruegel think-tank said.
The European Commission forecast last November that Greek public debt will rise to 150.2 percent of gross domestic product from 140.2 percent in 2010 and then to 156 percent in 2012.
"We think that Greek debt is unsustainable and should be restructured and it is better if it happens now than later," said Bruegel's Zsolt Darvas, who is preparing the research together with Bruegel members Jean Pisani-Ferry and Andre Sapir.
Bruegel research is often reflected in the decisions of euro zone policy-makers.
Darvas said that assuming that Greek debt should be reduced to 90 percent of GDP, the haircut in the value of bonds held privately and by the ECB would be 40 percent this year.
If policymakers wait until 2013, the haircut would have to grow to 60 percent, because the debt would grow, Darvas said.
The restructuring would be needed because only to stabilise Greek debt at current levels, Athens would have to have a primary budget surplus of 8.6 percent of GDP, rather than the 1.2 percent of GDP primary deficit forecast by the European Commission for 2011.
To bring debt down, the primary surplus would have to be even higher, by some 5 percentage points.
"This is too much," Darvas said.
The final version of the paper is to be published next week, ahead of the Feb. 4 meeting of EU leaders, Darvas said.
The Commission has said the summit should make decisions on increasing the size and scope of operations of the euro zone rescue fund, the European Financial Stability Facility (EFSF).
Greece has repeatedly denied it was planning any debt restructuring and the Commission has said no talks on such a scenario were going on because its consequences were too dangerous in terms of spill over effects.
But Darvas said that because market participants have made their own calculations and expected a Greek default, the consequences would not be that severe.
"It would not be a European Lehman Brothers," Darvas said, referring to the bankruptcy of the U.S. investment bank that triggered a sharp deterioration in the global financial crisis which started in the U.S. sub-prime mortgage market.
