Download publication

Policy Contribution

The Greek debt trap: an escape plan

Without corrective measures, Greek public debt will exceed 190 percent of GDP, instead of peaking at the anyway too-high target ratio of 167 percent of GDP of the March 2012 financial assistance programme. The rise is largely due to a negative feedback loop between high public debt and the collapse in GDP, and endangers Greek membership of the euro area. But a Greek exit would have devastating impacts both inside and outside Greece.

By: Date: November 9, 2012 European Macroeconomics & Governance Tags & Topics

A small reduction in the interest rate on bilateral loans, the exchange of European Central Bank holdings, buy-back of privately-held debt, and frontloading of some privatisation receipts are unlikely to be sufficient.

A credible resolution should involve the reduction of the official lending rate to zero until 2020, an extension of the maturity of all official lending, and indexing the notional amount of all official loans to Greek GDP. Thereby, the debt ratio would fall below 100 percent of GDP by 2020, and if the economy deteriorates further, there will not be a need for new arrangements. But if growth is better than expected, official creditors will also benefit.

In exchange for such help, the fiscal sovereignty of Greece should be curtailed further. An extended privatisation plan and future budget surpluses may be used to pay back the debt relief.

The Greek fiscal tragedy highlights the need for a formal debt restructuring mechanism.

View comments
Read article More on this topic More by this author

Blog Post

Nicolas Véron

The IMF’s performance on financial sector aspects of the euro area crisis

The recently published in-depth evaluation of the International Monetary Fund (IMF)’s role in the euro area crisis highlights important contrasts in the area of financial services. The IMF provided highly valuable analysis and recommendations to the EU on its banking sector and related policies. In individual countries (leaving aside Cyprus and the second Greek programme, not covered by this evaluation), the financial-sector aspects of the IMF’s interventions were highly successful in Ireland and Spain, ambiguous in Greece, and a missed opportunity in Portugal.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: August 29, 2016
Read article Download PDF More on this topic More by this author

Policy Contribution

cover pc 13 16

The IMF’s role in the euro-area crisis: financial sector aspects

Nicolas Véron reviews in-depth the role played by the IMF in understanding the financial-sector dynamics of the euro-area crisis. The IMF was the first public authority to acknowledge the role of the bank-sovereign vicious circle and to articulate a clear vision of banking union as an essential policy response. At national level, the IMF’s approach to the financial sector was appropriate and successful in Ireland and Spain, more limited in the Greek Stand-By Arrangement, and less compelling in Portugal.

By: Nicolas Véron Topic: Finance & Financial Regulation Date: August 29, 2016
Read about event More on this topic

Past Event

Past Event

Does the euro area need a sovereign insolvency mechanism?

The sovereign debt crisis shook the Euro to its foundations. It soon became clear that there was no mechanism to allow a tidy insolvency of a state wishing to remain inside the euro area. To face future crises, does the EU need a sovereign insolvency mechanism?

Speakers: Jochen Andritzky, Lars Feld, Zsolt Darvas and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 12, 2016
Read article

Blog Post

Zsolt Darvas
Pia Hüttl

Is Greek public debt unsustainable?

Greek public debt does not look sustainable if the country has to return to market borrowing at the end of the third bail-out programme, but could be sustainable if preferential ESM funding continues in the long-term. Our advice is to offer hope for Greece in the form of delayed fiscal adjustment toward a target of 2.5% of GDP primary balance and adopt various measures to ease the debt burden, for the benefit of both Greece and its official lenders.

By: Zsolt Darvas and Pia Hüttl Topic: European Macroeconomics & Governance Date: May 7, 2016
Read article More on this topic More by this author

Opinion

Guntram B. Wolff

Making the EU-Turkey refugee deal work

The EU deal with Turkey reached on 18 March is problematic, but without a deal the EU’s external borders would have collapsed completely. Now the EU needs to support Greece and increase the number of refugees taken directly from Turkey.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: April 11, 2016
Read article Download PDF More on this topic

Policy Contribution

WhIch fiscal union for the euro area?

Which fiscal union for the euro area?

At the current level of political and societal integration, a large federal budget is unrealistic in the euro area. The authors make three recommendations that would lead national fiscal policies to be more stabilising with respect to the economic cycle, while achieving long-term sustainability. They also recommend a move towards a European unemployment insurance scheme targeted at ‘large’ shocks, and a minimum set of labour-market harmonisation criteria.

By: Agnès Bénassy-Quéré, Xavier Ragot and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: February 18, 2016
Read article More on this topic More by this author

Opinion

Ashoka Mody

Greece: a European tragedy

Wrapped up in the details of pension reforms and home foreclosure—matters that, no doubt, have important consequences for many— the big picture has faded into the background. It is easy to forget how we got here, and where we are going.

By: Ashoka Mody Topic: European Macroeconomics & Governance Date: January 14, 2016
Read article More on this topic More by this author

Blog Post

Silvia Merler

Greek bank recap

The ECB published the comprehensive assessment of the four major Greek banks (Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank) yesterday, in line with what was agreed in the third bailout programme for Greece. This exercise will form the basis for the recapitalisation operation foreseen as part of the programme, which will need to be carried out soon.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: November 2, 2015
Read article Download PDF More on this topic More by this author

Working Paper

Internationalising the currency while leveraging massively: the case of China

Internationalising the currency while leveraging massively: the case of China

This paper reviews the steps that China has taken towards financial reform with a particular focus on capital account liberalisation and internationalisation of the use of the renminbi.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: October 29, 2015
Read article More on this topic

Blog Post

Uuriintuya Batsaikhan
Pia Hüttl

The global debt overhang

What’s at stake: Seven years after the financial crisis, recovery is still weak in most parts of the global economy. The general debt overhang across sectors, which was not reduced in the last years, has often been cited as as the main factor weighing on global growth and inflation.

By: Uuriintuya Batsaikhan and Pia Hüttl Topic: Global Economics & Governance Date: October 26, 2015
Read article More on this topic More by this author

Blog Post

Silvia Merler

Greece budget update - October

The Finance Ministry of Greece has published the preliminary budget execution bulletin for September, covering the first 9 months of the year. It reveals a decline in the primary surplus, compared to the over performance recorded in recent months.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: October 19, 2015
Read article More on this topic More by this author

Opinion

Ashoka Mody

No lessons learned

With the drag from austerity, the debt-deflation spiral, and a weak international economy, where does the projected Greek rebound come from?

By: Ashoka Mody Topic: European Macroeconomics & Governance Date: September 23, 2015
Load more posts