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EU-Sources to Reuters: Greece Will Need More Debt Restructuring

 As if the notorious and anonymous “EU-source” predicting and forecasting bad omens was not enough, two more “EU-Sources” popped up and all the three together told Reuters that Greece would need another debt-restructuring. However as the issue is too complicated there is no open discussion until now about this issue, the three sources said. 

Greece will need more debt restructuring – EU officials

Greece is unlikely to be able to pay what it owes and further debt restructuring is likely to be necessary, three EU officials said on Tuesday, a cost that would have to fall on the European Central Bank and euro zone governments.

The officials said that twice bailed-out Greece would be found to be way off track by EU and International Monetary Fund officials who have been assessing the country.

Inspectors from the European Commission, the ECB and the IMF — together known as the troika — returned to Athens on Tuesday and will complete their debt-sustainability analysis next month, but the sources said the conclusions were already becoming clear.

It means Greece’s official-sector creditors — the ECB and euro zone governments — will have to restructure some of the estimated 200 billion euros of Greek government debt they own if Athens is to be put back on a sustainable footing.

But there is no willingness among member states or the ECB to take such dramatic action at this stage.

“Greece is hugely off track,” one of the officials told Reuters, speaking on condition of anonymity because of the sensitivity of the issue. “The debt-sustainability analysis will be pretty terrible.”

Another official pointed to the latest growth estimates from Athens, which show the economy contracting by 7 percent this year rather than the 5 percent previously forecast, meaning that the debt burden is only increasing in relation to GDP.

“Nothing has been done in Greece for the past three or four months,” said the official, referring to the delays caused by the two elections held since May.

“The situation just goes from bad to worse, and with it the debt ratio,” said the official, a policymaker directly involved in trying to find solutions to the crisis.

Under the terms of the second bailout agreement struck with the EU and IMF in February, Greece committed itself to further spending cuts and tax increases in exchange for a 100-billion-euro reduction in its debts.

The restructuring involved private-sector owners of Greek government bonds accepting losses of up to 70 percent on their holdings with the aim of reducing the debt ratio from around 160 percent of GDP to below 120 percent by 2020 – a level the IMF has deemed sustainable in the long-term.

But Greece is significantly far off reaching that 2020 goal, the officials said. One estimated that the overshoot could be up to 10 percentage points, equivalent to around 30 billion euros.

“This has not been explored yet politically because no one wants to launch that discussion,” the first official said. “The political feasibility of carrying out an official-sector restructuring is becoming more and more complicated.” (Full story Reuters)

PS So why pick up the issue now, dear “EU-sources”?

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  1. What are additional debt restructuring plans good for when it’s the Troika, not Greece, which pays all those costs? All efforts should go now into pushing Athens into reforms that will enable a sustainable recovery and a primary budget surplus. Only if that is accomplished would a debt restructuring make any difference at all. But the chances for that look so slim now that an orderly default and a Grexit would certainly be the better option.

  2. Probably an easier and better option for the EU. Greece on the other hand will fall even further to the abyss of economic stagnation and social unrest. Maybe this is the right of passage that is required for it to become a modern state. Who knows?

  3. Well, Greece DID actually fare much better at overcoming recessions in the past, with the weak old Drachma. So, a Grexit at least offers a silver line at the horizon, while keeping the Euro very obviously doesn’t work under the Greek conditions, as the experience of the last years has shown. Of course, a new Drachma comes with its own hardships (most prominently, big inflation), but it’s very obviously the lesser evil now.