“If we take into account how much debt Greece has and how weak its economy’s carrying capacity is, then we can think that maybe even three quarters of Greek debts should be forgiven to give Greece good opportunities to start growing again,” says Senior Vice President Jaakko Kiander from the pension insurance company Ilmarinen.
Senior Economist of the Tapiola Group, Jari Järvinen, agrees with this assessment.
“If we consider debt as relative to the GDP, then the problem is so big that I would estimate that some 75 percent of the debt should be written off, and I would continue from there with a credible stabilisation programme,” Järvinen says.
Sampo Bank’s Chief Economist Pasi Kuoppamäki says that potential restructuring arrangements need to be drastic.
“Greek debt would need to be significantly reduced—halved, for example. This would put Greece back on a credible path. Even after that, it would need to exercise considerable budgetary discipline,” Kuoppamäki notes.
The repercussions
The big question regarding potential debt restructuring is whether or not such a step would elicit the same market reactions as the 2008 bankruptcy of US investment bank Lehman Brothers.
Writing off Greek debt could also lead to other troubled eurozone economies requesting similar treatment.
“In the best-case scenario this would not happen, but I would consider it likely that Portugal and Ireland would also eye this option if Greek debt restructuring occurs,” says Järvinen.
Greek debt currently runs to some 333 billion euros.
