As the EZ Finance ministers get together for yet another meeting on Greece due to commence 1130 GMT the markets are generally sanguine that some sort of a bailout deal with be made. However, even if Greece receives its third batch of bailout funds since 2010, the country’s long term problems remain unresolved.
In today’s interview with Bild ECB central board member Joerg Asmussen made it perfectly clear that he does not favor any write down of Greek debt as part of the rescue package. Yet a write down of Greek debt is precisely the type of long term restructuring help that Greece needs in order to begin its journey back to solvency. We have long argued that its debt ratio well in excess of 120% of GDP in effect renders the country insolvent and the austerity which it is forced to undergo as part of the bailout terms have only exacerbated the crisis by contracting the economy further thus widening the budget gap.
Prior to today’s meeting there was some market speculation that the EU may undertake a plan to reduce Greece debt/GDP ratio to a much manageable 70% which would materially ease the debt burden and allow for a genuine economic recovery. However, Mr. Asmussen’s comments poured cold water on that notion suggesting that the EcoFin will simply revert to the same stop gap measures that have shown to be a failure over the past several years.
Speaking to Bild Mr, Asumussen stated, “”We need a package of measures to close the financial gap that will include a substantial reduction of the interest rates and a debt buy-back by Greece. A hair cut does not belong to that package.” Even if the EZ policymakers were to provide Greece with near zero interest rate terms and extend the maturities of its debt to 50 years or more, it is not at all clear if such measures would have the positive impact of a straightforward debt write down. Yet even such considerations are out of the question as the political reality of the EZ will prevent policy makers from taking such bold and dramatic steps.
Bailout or no bailout Greece therefore will likely remain an albatross across EZ neck and will continue to flare up as a problem on a semi annual basis as its economy is unlikely to recover under the continued draconian austerity regime.