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EU Errs by Ruling Out Pre-2013 Restructuring, Ex-IMF Aide Says

European governments are making a mistake by ruling out debt restructurings for countries such as Greece before 2013 and should consider “pre-emptive” bond exchanges, a former top International Monetary Fund official said.

Lessons from emerging-market restructurings offer a “market-based way out,” Alessandro Leipold, a former acting director of the IMF’s European department, wrote in a policy brief released today by the Lisbon Council in Brussels.

“Do it early, do it pre-emptively, if possible on a voluntary basis,” Leipold said in a telephone interview. “The risks of postponing are greater.”

European Central Bank officials are the chief opponents of extending Greece’s debt-repayment timelines or cutting the value of its bonds, fearing that this would convulse financial markets.

Leipold, a 26-year IMF official, said that while it will take more in-depth analysis to reveal the true state of Greece’s finances, “the writing is on the wall for them.”

European governments have ruled out any “private sector involvement” in cutting Greece’s debt burden until the middle of 2013, when a permanent crisis-management fund is due to be set up.

That timetable “is a political and procedural artifact, divorced from economics and heedless of market developments,” Leipold wrote in the policy brief. “The sooner the artificial 2013 deadline is abandoned, the better.”

Ukraine, Pakistan and Uruguay exchanged existing bonds for new ones with different terms “in a pre-emptive manner, before an actual default,” providing a roadmap for how Greece could escape a debt trap, Leipold said.

To contact the reporter on this story: James G. Neuger in Brussels at

To contact the editor responsible for this story: James Hertling at

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