ΠΗΓΗ: Wall Street Journal
Greece is saved! But for how long? This week's votes in Parliament will allow euro-zone ministers, meeting on Sunday in Brussels, to discuss a new bailout for Greece, to pay out a slug of new money from last year's rescue and avoid an immediate payments crisis.
But every three months from now on risks a replay of a nail-biting drama.
Releasing more bailout funds will require the International Monetary Fund and European institutions to vouchsafe that Greece has not fallen short of its privatization and austerity pledges and the IMF will have to maintain that Greece's mountainous debt burden is sustainable. Even European optimists are not pretending that the deal has done much more than buy time.
The usual wisdom has been that there's a virtue in buying time. The longer the delay before the country's debts are fundamentally restructured, the more time banks and other financial institutions have to strengthen their balance sheets against losses, and the less the wider fallout.
Time also is supposed to ring fence Greece from other vulnerable economies in the euro zone, allowing other bailout recipients, Ireland and Portugal, to put their economic programs are on track.
"The main advantage of kicking the can is safeguarding particularly Portugal and Ireland, but also the second-wave of countries, Spain and Italy," says Marco Annunziata, chief economist at General Electric Co.
But delay has another effect too, one that will ultimately make even harder the task of bringing down Greece's debt burden.
The government's debt grows, because it still needs to borrow to cover its budget deficits. Meanwhile, every three months, it borrows another slug of cash from official creditors and pays off more private bondholders.
As this happens, sometime in 2012 or early 2013, official creditors, including the European Central Bank, will own more Greek debt than the private sector. The difference in dates depends on whether Greece meets its pledge to privatize €30 billion of assets over the next three years and whether bondholders will reinvest, as planned, €30 billion of maturing bonds back into Greek paper.
"By 2013, the official sector will own more Greek debt than the private sector. By 2016, the official sector will own four times what the private sector owns," says Adam Lerrick, a sovereign-debt specialist and a scholar at the American Enterprise Institute. "The more the official sector owns, the harder the debt becomes to restructure," he adds.
By the time of the crossover between public and private creditors, Greece's debt will be around 160% of gross domestic product. The threshold for a sustainable sovereign debt burden is usually considered about 80% of GDP. To get to that level, the restructuring would have to wipe out private creditors entirely—unless official creditors also agreed to take losses and suffer a proverbial haircut too. The IMF considers itself a "preferred creditor," which means it always insists on being paid in full.
Cutting less than that, say to 100% of GDP might make Greece's debt manageable, says Mr. Lerrick. "But it's still too high for the Greek economy and too high to get investors to lend to Greece. It's not worth going through all the aggravation and costs of a restructuring without really solving the problem."
One proposal that won't bring down Athens' high debt is the proposal from the French Banking Federation to encourage €30 billion of bond rollovers. Analysts say the plan is expensive for Greece—double-digit interest costs, assuming even modest growth. And it has poor precedents: "Voluntary" bond exchanges, such as Mexico's Aztec bond issue of 1988 and the Argentine bond exchange of 2001 were followed quickly by deals imposing haircuts on creditors.
It also enlarges Greece's debts, despite using guarantee techniques borrowed from the 1980s-era Brady Plan, which helped relieve Latin America's debt crisis.
The real Brady Plan, says Richard Portes, economics professor at the London Business School, delivered a 35-40% haircut to bondholders. He argues that's what Europe's leaders should be preparing for. Such a restructuring should have be taking place "now, yesterday, a year ago," he says.
The lesson from Latin America's lost 1980s decade is that enterprise and investment is extinguished by the sense that income and profits are being squeezed "to pay off and service an unbearable debt," he adds.
Investors appear to agree. Greek government bonds maturing in two years yield more than 26%, a sure sign that investors don't think they'll be paid back anywhere near in full.
But there is another way out. Euro-zone governments could heed the ECB's warnings about the dangers of widespread fallout from a Greek restructuring, and assume all or most of the country's debts. That would be politically toxic in Germany and many other creditor countries, but may be the only way to avoid default.
Such a sign of European solidarity would end the Greek debt crisis at a stroke, and it's a decision that may face Europe's leaders sooner than they think. Twenty-five percent yields, anyone?