Every now and then for the last one year or so.we have been hearing about the latest development of the IMF bail-out package for troubled euro zone countries.The plethora of information highlighting different view points about what should Greece and other troubled euro zone countries do,have forced me to mull over this issue and come up with my understanding of the situation.
The bail regime for Greece started about one year ago.Earlier the politicians and the leading bankers thought that providing a stimulus package from the IMF coupled with the fiscal tightening by the Greece policy makers would do the trick and Greece should be able to ride through the tough waves.But now as the time has passed the proposed solution seems to be infeasible and once again the top European authorities of the likes of European union and the European central bank are once again busy contemplating a new strategy which help this troubled economy to pass the stringent test which lies ahead.
The bond yields of Greece are rising at a very fast rate and for sure this rate is not sustainable for the government.It was planned earlier during the 1st IMF sanction that Greece will return to the markets by 2012,butthe yields have risen to such an extent that it's impossible for the government to turn to private investors for its financing for the year 2012.What this has done that it has made clear that the current fiscal stimulus from the IMF is not enough and there is a need for other more pragmatic solution to this problem.The politician of the euro zone area are talking about possible debt restructuring,however the ECB is strictly opposing any such restructuring scheme.The ECB is opposed to this scheme because the write-down which comes with the restructuring will effect the banks who are currently holding the Greece government debentures.Jean-Claude Trichet, President of the European Central Bank is having a tough time convincing the politicians that any restructuring will effect badly not just the Greece banks but also various other large banks across the euro zone which are possessing the Greece government debentures.The probable solution which the ECB is suggesting that is to increase the maturity of the government bonds keeping the interest and the Principal intact.What this will do is that it will provide Greece with some more time but ultimately this is a short-term easing,ultimately the payment has to be made and at present level of 145-% of GDP deficit it is almost sure that Greece will not be able to do that.Restructuring is something which will have to be done-the sooner the better.
From the last we got an idea why restructuring is important in Greece case.But again as there are opposing concepts to every probable idea,this too has its cons.Most of the people who are opposed to this idea say that restructuring will promote other countries not to try harder to make sure that their fiscal policy are implemented with due diligence and in a punitive manner.Countries like Ireland and Portugal have al-ready been provided with IMF fiscal stimulus, so if we go in for restructuring for Greece case then we might have to consider restructuring for these two countries as well.This will for sure will put immense pressure on the European banks.
Finally to end this discussion i will like to conclude that restructuring has to be there in Greece case if we think of proving a long term solution.Without restructuring it will be impossible to sustain the deficit level and the Greece economy will succumb into dip recession much bigger than the Lehman brothers.What lies to be taken care of is the extent of restructuring and this is something which requires due diligence from the European politicians side.
The bail regime for Greece started about one year ago.Earlier the politicians and the leading bankers thought that providing a stimulus package from the IMF coupled with the fiscal tightening by the Greece policy makers would do the trick and Greece should be able to ride through the tough waves.But now as the time has passed the proposed solution seems to be infeasible and once again the top European authorities of the likes of European union and the European central bank are once again busy contemplating a new strategy which help this troubled economy to pass the stringent test which lies ahead.
The bond yields of Greece are rising at a very fast rate and for sure this rate is not sustainable for the government.It was planned earlier during the 1st IMF sanction that Greece will return to the markets by 2012,butthe yields have risen to such an extent that it's impossible for the government to turn to private investors for its financing for the year 2012.What this has done that it has made clear that the current fiscal stimulus from the IMF is not enough and there is a need for other more pragmatic solution to this problem.The politician of the euro zone area are talking about possible debt restructuring,however the ECB is strictly opposing any such restructuring scheme.The ECB is opposed to this scheme because the write-down which comes with the restructuring will effect the banks who are currently holding the Greece government debentures.Jean-Claude Trichet, President of the European Central Bank is having a tough time convincing the politicians that any restructuring will effect badly not just the Greece banks but also various other large banks across the euro zone which are possessing the Greece government debentures.The probable solution which the ECB is suggesting that is to increase the maturity of the government bonds keeping the interest and the Principal intact.What this will do is that it will provide Greece with some more time but ultimately this is a short-term easing,ultimately the payment has to be made and at present level of 145-% of GDP deficit it is almost sure that Greece will not be able to do that.Restructuring is something which will have to be done-the sooner the better.
From the last we got an idea why restructuring is important in Greece case.But again as there are opposing concepts to every probable idea,this too has its cons.Most of the people who are opposed to this idea say that restructuring will promote other countries not to try harder to make sure that their fiscal policy are implemented with due diligence and in a punitive manner.Countries like Ireland and Portugal have al-ready been provided with IMF fiscal stimulus, so if we go in for restructuring for Greece case then we might have to consider restructuring for these two countries as well.This will for sure will put immense pressure on the European banks.
Finally to end this discussion i will like to conclude that restructuring has to be there in Greece case if we think of proving a long term solution.Without restructuring it will be impossible to sustain the deficit level and the Greece economy will succumb into dip recession much bigger than the Lehman brothers.What lies to be taken care of is the extent of restructuring and this is something which requires due diligence from the European politicians side.
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