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The Latest Regarding The Greek Debt Crisis

by Jim ONeil on May 21, 2011

in uk banks

The debt crisis in Greece will likely take many twists and turns during the next few months. The €110 billion bailout from the EU and IMF is not enough because as of March 2010, Greece needed at least €151.5 billion to repay its debts. Since then, the numbers have become worse and things look even bleaker.

The most recent analysis from the EU is that additional long-term borrowing of €44.1 billion will be needed. Few think Greece can raise this amount of money because most markets are currently asking for over 15 percent to lend and Greek bonds are well into junk ranking. In less than one year, the country will need to repay a bond totaling €14.4 billion.

Though these figures are astounding, there are some solutions. The first is to tweak the bailout package for Greece and hope this is enough to provide the country with time to regain the confidence of the market. This can be done by lowering interest rates on the bailout loans and allowing the country more time for repayment. Privatizing state assets should also go a long way, but not during the near future.

Supplying Greece with additional money would be a quick fix. However, other EU countries will surely not be pleased about this. This move also would not reverse the upward movement of debt in Greece. About €35 billion worth of long-term debt must be repaid in 2012. Borrowing money to lend to Greece, a credit risk, to repay borrowers like private banks will not be politically popular.

Greece could also be instructed to provide private creditors with a voluntary exchange of maturing bonds for new ones to be repaid later. However, this would not impact the total debt of the country. It may be necessary to make private investors and possibly even public lenders accept that they will never be fully repaid.

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