“In Greece, [Buchheit] says, there is more to do. Yes, it has slashed its debts but much of it has simply been transferred into loans from public institutions. “To be made presentable again to the markets, you are going to have to do something with that debt stock, otherwise it hangs like a miasmic cloud over their future.”
Another “haircut” is not politically feasible. “No northern European politician is going to gleefully sign on to the proposition that they lost a euro. But they can say, ‘Let us stretch this out so that it matures on the 12th of never.’”
So Germany and the other eurozone countries might lend to Greece at a rate of 2%, and agree not to be repaid for another 40 years. “Now,” says Buchheit, energised as he gets into the finer details, “the purist would say you’ve kicked the can a long way down the road to be sure, but it’s still a can and it’s still pretty battered and you haven’t changed the debt to GDP [ratio] or any of that.”
But, he explains, investors will not worry about that if they can lend to Greece over, say, 39 years, as they will get their money back before the public sector lenders.
The more pressing question, however, is Cyprus. European leaders meet on Thursday to discuss the terms of its bailout. Meanwhile, its debt investors will be nervous to hear it was on Buchheit’s itinerary when he visited Europe in January. Despite having an economy worth 0.2% of eurozone GDP, what happens in Cyprus will be crucial to the next stage of the crisis, says Buchheit. “In one sense, the fact that Cyprus is small arguably allows them to experiment. But the world will watch it and see Spain.”
Spain, he says, may be a more immediate risk than Italy, with its mountains of regional, as well as national, debt. But fixing its problems will be anything but simple.
Eurozone crisis as it happened: UK manufacturing slump raises risk of triple-dip – The Guardian