Greece's Sovereign Debt Past, Present and Future

Abstract

The Greek debt restructuring of 2012 holds a historic place in the world, for more than one reasons, positive, but also negative. During the PSI securities totaling €199.2bn participated or 96.9% of the securities that were eligible and led to short-term EFSF bonds issuance worth €29.7bn and new long-term bonds worth € 62.4bn. As a result Greek sovereign debt decreased by €107bn or about 52%. In this context, the PSI reorganization of 2012 was largely organized and executed, successfully. However and this is openly acknowledged, it was a reorganization that took place after a considerable delay (in response to the Greek crisis) and with limited range, which in fact questioned if it could definitively resolve the issue of Greek debt sustainability for good. But such a criticism implies that indeed the reorganization of 2012 was designed as an answer to the sustainability problem in its entirety, which it seems that it was not the intention. On the other hand, another point of criticism is that if the reorganization had been selected to be executed earlier, certainly not during the prohibited - for reasons that are not for the present article - 2010, but perhaps in mid-2011, stopping the vicious cycle of repayment of the bonds at face value, it would had achieved additional fiscal goals. It is therefore obvious that the momentum of a reorganization, affects not only the will of the parties to participate in such a transaction and affects not only the success of such a venture, but has also other side effects which should be treated as equally important.Given the projected financing needs of the Greek State and the financing gap Greece is expected to face up until mid-2018, it is certain that a new intervention - of whatever nature - will be inevitable. Based on the 2010-2015 experience and lessons learned prior, during and post PSI the only certainty is that a possible future restructuring of the Greek sovereign debt, as extensive and deep, will be unavoidable. However such a restructure, which it would be best & final, will not relieve the Greek economy from the torment of the necessary fiscal adjustment, nor will undo the dependency of the Greek State Budget from the economic support of the Member-States and possibly the IMF or its institutional successor, at least for a sufficient transitional period. However, it will be a milestone for the future course of the Greek economy, as it will give room and will enable utilization of the today finite State funds for other purposes, against for example the Greek sovereign debt endless maturing repayments, in order to restart the economy, which is the stake at hand.