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How to Solve the Greek Debt Problem

Author

Listed:
  • Jeromin Zettelmeyer

    (Peterson Institute for International Economics)

  • Emilios Avgouleas

    (University of Edinburgh)

  • Barry Eichengreen

    (University of California, Berkeley)

  • Miguel Poiares Maduro

    (European University Institute, Florence)

  • Ugo Panizza

    (Graduate Institute, Geneva)

  • Richard Portes

    (London Business School)

  • Beatrice Weder di Mauro

    (INSEAD, Singapore)

  • Charles Wyplosz

    (Graduate Institute, Geneva)

Abstract
Greece’s debt currently stands at close to €330 billion, over 180 percent of GDP, with almost 70 percent owed to European official creditors. The fact that Greece’s public debts must be restructured is by now widely accepted. What remains controversial, however, is the extent of debt relief needed to make Greece’s debt sustainable. This Policy Brief argues that the debt relief measures outlined by the Eurogroup will not be sufficient to restore the sustainability of Greece’s debt. At the same time it shows that Greece’s debt sustainability can in fact be restored without aggravating moral hazard—i.e., encouraging future governments in Greece and elsewhere in the euro area to take risks in the belief that they will be bailed out—and within the framework of EU law, in particular Article 125 of the Lisbon Treaty, which prohibits EU members from assuming liability for the debts of other members. It concludes that only conditional face value debt relief, in combination with the measures already considered by the Eurogroup, would restore Greece’s debt sustainability with reasonable confidence. Furthermore, if the debt relief is structured in a way that creates incentives for additional fiscal adjustment, as proposed in this Brief, the amount of face value debt relief required could be modest—on the order of 10 to 15 percent of the outstanding official debt.

Suggested Citation

  • Jeromin Zettelmeyer & Emilios Avgouleas & Barry Eichengreen & Miguel Poiares Maduro & Ugo Panizza & Richard Portes & Beatrice Weder di Mauro & Charles Wyplosz, 2018. "How to Solve the Greek Debt Problem," Policy Briefs PB18-10, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb18-10
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    File URL: https://www.piie.com/publications/policy-briefs/how-solve-greek-debt-problem
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