It is not clear - and probably impossible to know - to what extent this EUR40bn figure double-counts the government bonds held by Emporiki and Geniki, but for reasons to be discussed below, I don’t think that matters so much. If the debts had been smaller or larger, that wouldn’t have changed the number EURxbn. The creditors effectively agreed to roll over their outstanding debts, and to provide EURxbn of additional financing. It’s the nature of debt crises that they tend to happen to countries with big debts, and countries with big debts have creditors. This is just missing the concept of a debt rollover. Second, let’s not make mistakes based on dividing the deficit financing by the total size of the package, and getting results that “x% of the financing went to Greece, all the rest went to creditors”. If the people negotiating the package had unlimited money, they would have agreed a larger primary deficit in 2010, but they didn’t - the 2010 package was the largest amount of financing that was available. (Olivier Blanchard makes this important point clearly). It was the outcome of a genuine, albeit politically driven, budget constraint. In Greece, though, in 2009–10 at least, the fiscal deficit was not, in my view, chosen as a policy. In my view, the real definition of austerity is a tightening of the fiscal stance *as a policy choice*. I’m going to be using a couple of key concepts quite a lot, so it’s best to spell them out ahead of time rather than introduce them at the same time as a bunch of other complicated stuff.įirst, I think we need to make a distinction between two kinds of “austerity”.
#Greek private debt writedown series#
This is going to have to be (at least) a two-part series because I want to get quite detailed - this part deals with point 1 above and the question of “Who was the 2010 bailout meant to benefit?”.Ī couple of conceptual primaries.
It’s worth relitigating in detail though, because in going through the choices made in 2010 we can learn a lot about how bailouts in general operate, and how the development of the programs since 2010 could end up generating serious errors going forward. There’s some truth in these points - as I say, it’s the most intelligent critique of the Eurogroup - but in my view the conclusion is wrong and the 2010 bailout was not a mistake. So, most of Greece’s economic problems today would have been better if it had defaulted in 2010 rather than accepting the Eurogroup’s program. Greece would have benefited more in the long term from a program with the same deficit financing but a face value debt writedownģ.
The actual amount of financing available for the Greek fiscal deficit was smaller than it might otherwise have been, orĢb. The 2010 bailout was mainly directed at stabilising European financial markets, so eitherĢa. Triangulating between Karl Whelan, Mark Blyth, Simon Wren-Lewis, Steve Waldman and Martin Sandbu, for example, we can identify the following argument (which of course doesn’t do justice to any of them - do please read the links rather than assuming I’ve summarised anything accurately!):ġ. It’s becoming a common theme of the more intelligent end of criticism of the Eurogroup to identify the 2010 bailout as the real error. The ratings agencies have already reacted and downgraded the bonds, interesting for the markets would be mandatory CDS payoff, as that would become very expensive for some market participants.2010 and all that - Relitigating the Greek bailout (Part 1) "I don't really see any repercussions for the international markets by a default by Greece as that is already anticipated by the markets. "Yes there would legally be a default if the quota will not be high enough, but I think that the pressure is high enough so that quota will be reached," said Lipkow. One German investment trader, Andreas Lipkow, said he thinks that in the end, Greece will be able to cut enough of its debt. Greece says that if it hits the two-thirds threshold for the reduction, it could seek to force the deal on its remaining creditors. The debt write-down is part of Greece's effort to secure a new $172-billion bailout and avoid a default on its financial obligations.įive small Greek pension funds holding about one percent of the bonds eligible for the write-down have rejected the deal, as have several investment funds and Germany's best-selling newspaper, Bild. But by Wednesday, agreements had only been reached covering 46 percent of the debt. The Athens government says it needs the banks, pension funds and other financial institutions holding at least two-thirds of the country's private debt to agree to the write-down.
Greece is edging closer to its goal of getting the country's private lenders to eliminate $142 billion of the money it owes them, but remained short of the target as a Thursday deadline neared.
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