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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.

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Past Event

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Speakers: Christine Lagarde, Jean-Claude Trichet and Guntram B. Wolff Topic: Global Economics & Governance Location: Brussels Date: April 12, 2017
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Blog Post

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Podcast

Podcast

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By: Bruegel Topic: Finance & Financial Regulation Date: November 8, 2016
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By: Nicolas Véron Topic: European Macroeconomics & Governance Date: November 3, 2016
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Blog Post

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By: Nicolas Véron Topic: Finance & Financial Regulation Date: August 29, 2016
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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
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Past Event

Past Event

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Zsolt Darvas
Pia Hüttl

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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
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Opinion

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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
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