Greece Needs Extra Debt Relief in 12 Months, Merkel Adviser Says
Given that Greece’s debt load will remain at “very high levels” after the writedown, policy makers will have to begin thinking about further debt relief in the next “half a year” that could involve cuts among “official bondholders.”
“What will have to be achieved is a real debt relief for Greece -- and it will have to come in the next 12 months,” Bofinger said in an interview from Berlin today with Bloomberg Television.
The Greek government’s offer to private bondholders to exchange 206 billion euros ($271 billion) of debt, the biggest sovereign restructuring in history, ends at 10 p.m. Athens time. Euro-area finance ministers are due to discuss the results at 2 p.m. tomorrow Brussels time.
Investors holding about 60 percent of the bonds eligible for the swap have so far indicated they’ll participate. The Greek government has said it wants participation above 90 percent and is seeking a minimum level of 75 percent, including with use of so-called collective-action clauses forcing holders of bonds under Greek law into swapping.
The swap “will go through,” and markets won’t be jarred should a majority fall short of the targeted amount, Bofinger said.
“I think that the markets are aware of the risk that a majority for voluntary restructuring is not available, and so I think the surprise won’t be too big if tonight when they realize the collective action clauses will have to be applied,” he said.
Greece’s situation will remain “very difficult,” with the swap trimming the country’s outstanding debt to 161 percent of gross domestic product from 164 percent, Bofinger said. European leaders aim to reduce the figure to 120.5 percent in 2020.
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