Greek debt restructuring appears near certainty

“Never believe anything in politics until it has been officially denied”, has been variously attributed to Otto von Bismarck, the 19th century German Chancellor and in a slightly varied form to Claude Cockburn the 20th century British journalist. If repetition is a source of official authority then the restructuring of Greek sovereign debt must be a near certainty. There probably isn’t an official source in Europe that hasn’t denied that restructuring is being considered, is a possibility or is warranted.

The Greeks have declared it unnecessary countless times; the Germans said so this past weekend when a secret meeting in Luxembourg whose topic was not debt restructuring was revealed by der Spiegel, the German news weekly. The ECB has said is not a topic; the EU Commission has decried the unhelpful press speculation about its imminence; the French have made fun of journalists pursuing the story. It would be hard to find an official entity, large or small, central or peripheral to EU power, which has not added its denial to the cascade of official rebuttals, scoldings and scoffings.

The logic of Greek default is inescapable. Greece needs between €25 and €30 million more next year than the existing €110 billion bailout provides and a similar sum for 2012. There is no cash to draw. The Greek economy contracted more than 4.5% in 2010 and will probably shrink more than 3% this year. The private credit markets will not lend to Greece . The terms of the Greek bailout are only adding to Greek economic decline. But even if the bailout was interest free Greece would still be unable to reduce its debt load or permanently reduce its deficit and retain the current government.

The Greek economy simply does not grow fast enough to reduce the percentage of its deficit or debt. The Greeks do not respect or fear their government enough to pay taxes. The Germans will not turn the EMU into a permanent welfare state funded by themselves. There is no way out except to reduce the debt drag on the Greek economy and then hope that a series of Greek governments can earn the trust of the Greek people.

The politicians in Athens must somehow reduce the popular antagonism to the government so that the majority of the population participates in the official economic life of the country. That cannot be done within the existing sovereign debt structure. If the euro is to be kept the whole Greek debt must be recast. If it is not there is little reason for the Greeks to stay within the economic coffin of the euro.

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