A second bail-out for Greece, to be finalised later this month, has inched closer. Greece is likely to need another €60bn by 2013. It has agreed to privatise state assets to help it raise some of this cash, and will implement additional austerity measures. Germany has said that in return for more aid, it wants Greece to offer sovereign bondholders a seven-year extension of maturities.
What the commentators said
Germany wants private bondholders to share the burden of bailing out Greece again. It has the support of northern European states “keen to show taxpayers” that they’re not simply writing endless cheques for the profligate periphery, said Michael Derks of Fxpro.com.
But this also means that Germany “has thrown down the gauntlet” to the European Central Bank (ECB). This maturity extension is a form of restructuring and credit-ratings agencies have warned they would classify it as a default. The ECB is determined to resist restructuring for fear of Lehman-style contagion in the European banking system. Either Germany or the ECB “will have to give in”, said Commerzbank’s Christoph Rieger.
But whatever form any private bond-holder involvement in the rescue package takes, the basic problem remains. Greece is bust. Its “overall debt burden far exceeds” its ability to “generate the kind of revenues needed ever to meet it”, said Fabian Zuleeg of the European Policy Centre. Europe will eventually have to bite the bullet and write off much of its debt. Meanwhile, if policymakers can’t agree at the summit, or Greece refuses to put up with yet more austerity, a messy default would be on the cards. This “train smash”, said Derks, could get a lot worse.