The Greek government has begun to float the trial balloon of a lengthened period over which it repays its 110 billion euro bailout loans. Greek Finance Minister Georges Papaconstantinou once again ruled out a default or restructuring of his nation’s paper. He claims it would hurt the debtholders as much as it would hurt Greece, which is probably true. A number of European banks are believed to hold large holdings of Greek sovereign loans.
What the Greeks have not admitted is that default could be broadly interpreted to include a extension of the time over which it covers its EU and IMF obligations. Creditors who expect a fixed sum of money in the future will not receive that on the current repayment schedule. Greece would argue that its debt will be repaid in full, but a debt rescheduled is a debt in default, particularly if those due money have no say in the matter.
The loans given to Greece, Ireland, and, eventually Portugal, were troubled at the moment they were granted. Ireland has reset its forecast for GDP growth for 2011 to .8% from 1.7%. It has cut the figure for 2012 growth to 2.5% from 3.2%. Those numbers may seem modest, but they are not for a deeply indebted country which needs to cover its deficits and national debt obligations.
The next step in the process of EU nation bailouts may not be to increase the money lent to weak nations. It may be to lengthen the time over which the debts are repaid and this will be described as merely an extension and not a restructuring or default. It is a convenient way to call the bailout process a success when it has really started to become a terrible failure. It is certain that the debtholders of the sovereign paper from these nations will view it that way.
Douglas A. McIntyre