One way or another, a Greek debt writedown will happen

Barring a miracle, it won’t be part of the current package, but debt relief is still the big issue that will have to be tackled at some stage

Whatever deal is, or possibly is not, cooked up for Greece, there is an important point to remember: the country’s debts, standing at €320bn (£235bn), or about 180% of GDP, are unsustainable. One way or another, a debt writedown will have to happen at some stage. Barring a miracle, it won’t be part of the current package.

This has been easy to forget as the euro circus has travelled between Athens, Berlin, Brussels and Riga in recent weeks and months. The talks have concentrated on setting the terms for the release of the last €7.2bn tranche of loans from the previous bailout.

Of course, the reforms demanded of Greece this time will also be pivotal in setting the framework for next bailout package, where €30bn-€50bn is thought to be needed. But even if agreement can be reached on the main items on the current agenda – budget surpluses, pension reform, privatisation programmes and so on – it will require extreme optimism to believe Greece’s finances are on a path to long-term stability.

In other words, financial markets’ definition of a cheery outcome this week – a deal that keeps Greece in the eurozone for now – would really represent another compromise. Debt relief is still the big issue. And the political obstacles, from Germany to Estonia to Spain, look greater than ever.

Full article: One way or another, a Greek debt writedown will happen (The Guardian)

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