Advancing a Free Society

Is an Orderly Restructuring of Greek Debt Feasible?

Monday, June 14, 2010

Many economists argue that the Greek government, even with the help of the European/IMF rescue package, will eventually have to restructure its debt. Just last Friday in a Bloomberg News story Thomas Mayer, chief economist of Deutsche Bank, said this about Greece: “Deficit reduction alone doesn’t solve the debt issue…Hardly anyone I know believes they can carry it out and still not restructure. This is basically the expectation across all asset classes.” He then cites a projection that Greek debt will increase from 120 percent to 150 percent of GDP with the rescue package. Former IMF economists—such as Simon Johnson, Eswar Prasad, and Raghu Rajan—share this view about a restructuring.

The reason that government officials do not want to go down the restructuring route, or even admit the possibility, is that they worry that a restructuring would be disorderly, jolt the financial markets, perhaps causing contagion. But a restructuring does not have to be disorderly and would have the added benefit of avoiding harmful future bailouts.

Continue reading John Taylor on his blog Economics One

(photo credit: Giorgos~)