Monday, July 30, 2012

Haircut and Sovereignty

In exchange for debt forgiveness and austerity ease, euro zone partners may ask Greece to give up some sovereignty, economist says

Euro governments might be forced to accept a halving of the value of their Greek debt - known in the business as haircut, Peter Vanden Houte, chief economist at ING bank, told Reuters .
"If Greece is to be saved, we must see some debt forgiveness from euro zone governments in the coming years because otherwise Greece is never going to come out of the situation it is in now," he said. "We are talking about potentially a 50 percent haircut, which would still mean the Greek debt would be (proportionately) around the euro zone average."
The euro zone would want concessions from Athens. "Most probably in exchange, euro zone partners will be more strict on Greek compliance with structural reforms and may ask Greece to give up some sovereignty," said Vanden Houte.
While no official discussions are underway on another Greek debt restructuring, euro zone officials say privately it may be necessary if Greece is to have a fighting chance.
"The Greeks might say they are in such a mess that to survive they we need to ease up the austerity a bit, and to still regain debt sustainability they will have to default on 30-40 percent of the loans," one euro zone official said.
"There would be a lot of people saying this is understandable, so maybe this makes sense and maybe we could have a reasonable discussion among the member states on how Greece can move forward," the official said.
Greece is far behind with reforms to improve its finances and economy so it may need more time, more money and a debt reduction from euro zone governments.
Athens wants two more years than originally planned to cut its budget deficit to below 3 percent of GDP, so as not to impose yet more spending cuts on a country which is already in a depression
If Greek debt cannot be made sustainable, the country may have to leave the euro zone, sending a shockwave across financial markets and the European economy.

Ta Yp' Opsin (source: Reuters)

1 comment:

  1. Sovereignty and belonging to an organization or any non-state actor seems to be but shouldn't be mutually exclusive if some of the main factors that may affect a state’s capacity to exercise sovereign power - in a positive or negative way- are considered such as, geography, social mix, political culture, position in the world economy, diplomatic arrangements and military capability.
    I guess the balance is in the hands of patriotic (not nationalist) leaders and …sheer luck !

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