EconPapers    
Economics at your fingertips  
 

Does Greece Need More Official Debt Relief? If So, How Much?

Jeromin Zettelmeyer (), Eike Kreplin and Ugo Panizza
Additional contact information
Eike Kreplin: German Federal Ministry for Economic Affairs and Energy

No WP17-6, Working Paper Series from Peterson Institute for International Economics

Abstract: Creditor countries and international organizations continue to disagree whether Greece should receive additional official debt relief, and if so how much. This paper first shows that these disagreements can be attributed to competing assumptions about Greece’s future capacity to repay, particularly about economic growth and the fiscal primary balance. It next evaluates the plausibility of alternative primary balance assumptions using international evidence about fiscal adjustment experiences. It concludes that primary balance paths required to make Greece’s debt sustainable are not plausible and that Greece will therefore require additional debt relief. Finally, the paper shows that the debt relief measures suggested by the Eurogroup in May 2016 (albeit with significant caveats on whether they will in fact be granted or not) could be sufficient to address Greece’s sustainability problem, provided the Eurogroup is prepared to accept both very long maturity extensions on European Financial Stability Facility (EFSF) debt (to 2080 and beyond) and interest deferrals that could lead to a large rise in EFSF exposure to Greece before it begins to decline. If the Eurogroup wishes to avoid the latter, it will become necessary to either (1) extend the scope of the debt restructuring, (2) lower the interest rates charged by the EFSF significantly below current predictions, or (3) extend European Stability Mechanism (ESM) financing beyond 2018 and delay Greece’s return to capital markets for a protracted period.

Keywords: Greece; sovereign debt; debt restructuring; euro crisis; European Stability Mechanism; European Financial Stability Facility (search for similar items in EconPapers)
JEL-codes: F34 H63 (search for similar items in EconPapers)
Date: 2017-04
References: Add references at CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
https://www.piie.com/publications/working-papers/d ... elief-if-so-how-much (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iie:wpaper:wp17-6

Access Statistics for this paper

More papers in Working Paper Series from Peterson Institute for International Economics Contact information at EDIRC.
Bibliographic data for series maintained by Peterson Institute webmaster ().

 
Page updated 2021-06-18
Handle: RePEc:iie:wpaper:wp17-6