The Greek Crisis: Time Is More Precious Than Money

And we’ve got yet more news… “The leaders of Germany and France have said that they want a new rescue package for debt-laden Greece to be agreed as soon as possible…. But Angela Merkel and Nicolas Sarkozy said any private sector involvement should be “voluntary” not compulsory. It was unclear under what terms private investors might voluntarily take part in a Greek bail-out.” (, June 17th). Of course, it is unclear, how it could be otherwise? The private sector must – must, it’s imperative – bear a part of the burden of Greek debt restructuring.  And by all means restructuring implies downsizing, or cutting it down, because the Greek problem is not just a lack of liquidity. It’s already the challenge of insolvency, even with the execution of tough austerity measures.

It is a waste of time to claim that the private sector – banks and other investors speculating on this drama – can escape their part of responsibility for the crisis. In the theatre of international finance and debt trading there is always a risk. And, as it happens, sometimes one must pay for playing it unwisely. The sooner it’s accepted, the better for everyone including the French and German banks and taxpayers, and for their political leaders which have contributed to the current malaise and deterioration of the situation by their indecisiveness over the last year.

‘…the comments by Mrs. Merkel and Mr. Sarkozy were seen as a signal to banks and bondholders that they will not be made to incur losses on Greek debt.’ Again, wrong comment, wrong conclusion. They will. There is no way through policy maneuvering, made in France and in Germany (you bet; these two countries are holding almost 60 percent of Greece’s outstanding debt), that the private sector won’t be forced to accept the truth. And the truth is that in the medium term it must lose certain money due to earlier reckless borrowing.

Hence, chancellor Merkel and president Sarkozy are wrong when saying that ‘any private sector involvement should be “voluntary” not compulsory.’ Well, by the nature of the case at the end of the day it must be negotiated and agreed. You can call it ‘voluntary’, not ‘compulsory’. I call it indispensable. Instead of wasting more time with unrealistic scenarios, better to start restructuring the Greek debt right away. It must imply writing a slice of it, and how big a slice? That’s a good question.

While I was Poland’s finance minister I had signed in 1994 an accord with the London Club of private creditors. Until the agreement, as much as half of nonperforming debt had been reduced. However, it was done under very demanding conditionality, calling for far going structural reforms and progress in liberal institutional building. After hard work, we succeeded. And what about the foreign creditors? Have they lost a lot of money? I don’t think so. They were the winners too, since it happened to be sound long-term investment. Such agreement pays until today for both sides of the transaction.

So it can be in the case of Greece and its creditors. Yes, it is already a ‘credit event’. The alternative is not ‘voluntary’ or ‘compulsory’. The choice is between restructuring ‘by design’ or ‘by chaos’. It goes without saying that the latter will be much dearer.