Link to the University of Pittsburgh
Link to the University Library SystemContact us link
AEI Banner

The Greek debt trap: an escape plan. Bruegel Policy Contribution 2012/19, 7 November 2012

Darvas, Zsolt (2012) The Greek debt trap: an escape plan. Bruegel Policy Contribution 2012/19, 7 November 2012. [Policy Paper]

[img]
Preview
PDF - Published Version
Download (683Kb) | Preview

    Abstract

    Without corrective measures, Greek public debt will exceed 190 percent of GDP, instead of peaking at the anyway too-high target ratio of 167 percent of GDP of the March 2012 financial assistance programme. The rise is largely due to a negative feedback loop between high public debt and the collapse in GDP, and endangers Greek membership of the euro area. But a Greek exit would have devastating impacts both inside and outside Greece. A small reduction in the interest rate on bilateral loans, the exchange of European Central Bank holdings, buy-back of privately-held debt, and frontloading of some privatisation receipts are unlikely to be sufficient. A credible resolution should involve the reduction of the official lending rate to zero until 2020, an extension of the maturity of all official lending, and indexing the notional amount of all official loans to Greek GDP. Thereby, the debt ratio would fall below 100 percent of GDP by 2020, and if the economy deteriorates further, there will not be a need for new arrangements. But if growth is better than expected, official creditors will also benefit. In exchange for such help, the fiscal sovereignty of Greece should be curtailed further. An extended privatisation plan and future budget surpluses may be used to pay back the debt relief. The Greek fiscal tragedy highlights the need for a formal debt restructuring mechanism

    Export/Citation:EndNote | BibTeX | Dublin Core | ASCII (Chicago style) | HTML Citation | OpenURL
    Social Networking:
    Item Type: Policy Paper
    Subjects for non-EU documents: Countries > Greece
    EU policies and themes > Policies & related activities > economic and financial affairs > financial crisis 2008-on and consequences/reforms
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > Bruegel (Brussels) > Policy Contributions
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 09 Nov 2012 10:22
    Number of Pages: 22
    Last Modified: 09 Nov 2012 10:22
    URI: http://aei.pitt.edu/id/eprint/37322

    Actions (login required)

    View Item

    Document Downloads