Restructuring Greek Debt: Alternative Routes

Abstract:

In July 2015 Greece was on the verge of a default. The negotiations for a third assistance programme floundered after the Greeks rejected the conditions attached to it. Faced with the risk of bankruptcy, the Greek government was obliged to sit down again at the negotiating table and to accept the conditions put forward by the Euro countries.

The backbone of this assistance consists of the provision by the European Stability Mechanism (ESM) of EUR 86 billion over three years. In this context the sustainability of the Greek debt is ensured by a series of far reaching economic reforms. However, in the view of the International Monetary Fund (IMF) this reform package is not able to ensure the sustainability of the debt and a debt restructuring is thereby needed.

Unfortunately, the no-bail out clause contained in the TFEU does not permit such a route. To overcome this problem a viable approach would be to resort to the mechanism of debt swaps.