Buchheit’s point, and it’s a good one, is that Greece was never in control: it basically just always did whatever it was told to do by the official sector. For a good two years after the country lost market access, the official sector told Greece that it must not default on its debts, and instead provided all the money to repay those debts in full and on time — on top of all the money needed to finance Greece’s fiscal deficit. Then, suddenly, the official sector changed its mind, and demanded a private-sector haircut. So, that’s what Greece did. But even after a steep haircut, Greece’s debt is still unsustainable. Which raises the question: what is the official sector going to do about that, and when is it going to do it?
Buchheit’s answer — and I think he’s right about this, at least so long as Greece remains in the euro — is that eventually the official sector will be forced to do a reprofiling, or “treatment”. They’ll avoid taking a nominal haircut: they’ll keep the principal amounts intact, which won’t do any favors to Greece’s debt-to-GDP ratio. But they’ll push maturities out very far indeed, and attach extremely low coupons to them, to minimize the debt-service burden on Greece.
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