Write-down of 50 per cent in Greece's private debt 'not enough'

By staff writers
September 27, 2011

Debt campaigners have warned that the if the rumoured 50 per cent write-down in Greece’s debt owed to private creditors goes ahead, it will not be enough to get the country out of its debt and austerity trap.

Jubilee Debt Campaign pointed out that 20 per cent of Greece’s debt is now owed to EU bodies and the IMF.

A 50 per cent write down in debt owed to private creditors would still leave the Greek government with a foreign debt of 90 per cent of GDP.

Greece’s public sector external debt currently stands at 146 per cent of GDP - that is €329 billion. The IMF and EU have so far lent the country €65 billion since May 2010. That is 20 per cent of Greece’s debt. This does not include the Greek bonds bought by the European Central Bank.

The Jubilee Debt Campaign estimates that Greece's debt owed to private creditors (including the ECB) is €264 billion. A 50 per cent reduction in this would be €132 billion, leaving a remaining debt of €197 billion. This would leave Greece with a public external debt of 88 per cent of GDP, which would rise again with new loans from the IMF and EU and recession in the wake of continued austerity.

Jubilee Debt Campaign's Senior Policy Officer Tim Jones said: "For the past 18 months the IMF and EU have been bailing out banks through giving new loans to Greece. Even if private creditors are made to write-down 50 per cent of their remaining debt, this will no longer be enough to save Greece from the debt and austerity trap. Including the debt owed to the IMF and EU, Greece’s total foreign debt would still be 90 per cent of GDP.

"The IMF and EU continue to base their decisions on how to save the money of reckless banks, rather than providing light at the end of the tunnel to the people of Greece. It makes no sense to write-off some debt, whilst creating an even bigger pot of loans. There needs to be much larger cancellation of Greek debt, possibly including that created by the IMF and EU loans which have already bailed-out some of the reckless bank lending."

The loans from the IMF and EU are at higher interest rates than their own borrowing, which means they are profiting from lending to Greece.

The IMF projects that it will make a profit of $1.2 billion in 2011 rising to $2.3 billion in 2012, primarily from their lending to countries such as Greece and Ireland, as well as developing countries such as Pakistan and Jamaica.

When it defaulted at the end of 2001, Argentina’s government foreign debt was 80 per cent of GDP, according to figures from the World Bank. The UK’s current government foreign debt is around 15 per cent of GDP according to the IMF.


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