Reuters claims that Athens is not expected to ask for debt restructuring any time soon, according to an analysis.
Greece will never be able to repay its growing debt and would do better to conduct an orderly restructuring sooner rather than later, says Reuters.
It doesn’t expect Athens to seek relief from its creditors, while it states that all three major credit ratings agencies have downgraded its sovereign bonds to junk.
The risk premium investors charge for holding Greek debt rather than benchmark German Bunds stands at more than eight-hundred base points.
Hans-Werner Sinn, president of Germany’s Ifo economic research institute said that Greece will not be able to service its debt and the sooner that is recognized the better it will be for all parties involved, according to Reuters.
What seems more likely is that euro zone and the International Monetary Fund will give Greece more time to repay emergency loans, reduce the interest rate and buy back Greek debt on the secondary market to avoid such a “haircut”, says the news agency.
Reuters notes that even a limited write-down would hurt vulnerable European banks and insurers, particularly the French and Germans, and set a precedent that would damage the standing of the euro zone.
“Europe decided to support Greece substantially to defend the stability of the euro,” Prime Minister George Papandreou told a conference last week. “It is the very stability of the euro zone that is at stake now.”
The EUR 110 billion bailout that saved Greece from bankruptcy last May bought it time but not solvency, Reuters adds. In exchange, the Greek government is implementing a harsh austerity plan.
If it applies the three-year adjustment program to the letter, the EU and IMF forecast Greece΄s public debt will peak at 158 percent of GDP in 2013. Bank economists put the figure at more than 160 percent in 2014 and say it is unsustainable.
The country would have to generate an indefinite 5.5 percent primary budget surplus just to stabilize the debt at that level. The economy, which has shrunk by around 8 percent since the crisis began, would have to grow by some 5 percent a year to start bringing the debt down, according to Reuters.
Euro zone sources say allowing the bloc΄s EUR440bn stability facility to buy troubled members΄ debt on the secondary market, or lend them the money to buy it back themselves at a discount, are among options to be discussed at the European Summit on March 24th.
Ultimately, it will be Greece΄s euro zone partners that determine whether it restructures its debts and when, Reuters concludes.
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