Talk of a Greek debt restructuring is becoming ever harder to avoid for European policymakers. A paper just published by the respected Bruegel think-tank concludes “that Greece has become insolvent and that further lending without a significant enough debt reduction is not a viable strategy”.
According to Bruegel’s calculations, even on optimistic assumptions the primary surplus required to reduce Greece’s debt ratio to 60 per cent of GDP in 20 years would be 8.4 per cent of GDP, rising to 14.5 per cent under a cautious scenario. As Bruegel’s economists write: “Over the last 50 years, no country in the OECD (except Norway, thanks to oil surpluses) has ever sustained a primary surplus above 6 per cent of GDP.”
Greece’s problems have been exacerbated by deep investor mistrust and its heavy reliance on overseas financing. The good news is that the situation in other eurozone “peripheral” countries is not as acute. As Bruegel also notes, the European Union establishment has also moved away from complete denial about the Greek problem.