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Ramifications of Debt Restructuring on the Euro Area: The Example of Large European Economies' Exposure to Greece

  • Ansgar Belke
  • Christian Dreger

The Greek government budget situation plays a central role in the debt crisis in the euro area. The debt to GDP ratio is above 150 percent, while the deficit to GDP ratio exceeds 10 percent. To re-establish the Maastricht criteria, respectively, strong consolidation measures need to be implemented, with potential adverse effects on the Greek economy, and further credit requirements. Therefore, a debt conversion might become a reasonable alternative. The aim of this paper is to provide some simulation-based calculations on the expected fiscal costs for the governments in the large European countries Germany, France, Spain and Italy arising from different policy options - among them a potential second Greek rescue package. Under realistic conditions, a debt conversion may be the less costly strategy for Greece and the euro area partner states. A value-added of these calculations lies in a potential transfer to smaller euro area member countries.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.376445.de/dp1141.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1141.

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Length: 21 p.
Date of creation: 2011
Date of revision:
Handle: RePEc:diw:diwwpp:dp1141
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  1. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
  2. R. Gaston Gelos, Ratna Sahay and Guido Sandleris, 2008. "Sovereign Borrowing by Developing Countries: What Determines Market Access?," Business School Working Papers 2008-02, Universidad Torcuato Di Tella.
  3. Cruces, Juan J. & Trebesch, Christoph, 2013. "Sovereign defaults: The price of haircuts," Munich Reprints in Economics 20036, University of Munich, Department of Economics.
  4. Jeffrey D. Sachs, 1989. "Developing Country Debt and Economic Performance, Volume 1: The International Financial System," NBER Books, National Bureau of Economic Research, Inc, number sach89-1, June.
  5. Bulow, J. & Rogoff, K., 1988. "Sovereign Debt: Is To Forgive To Forget?," Working papers 8813, Wisconsin Madison - Social Systems.
  6. Georgios P. Kouretas & Prodromos Vlamis, 2010. "The Greek Crisis: Causes and Implications," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(4), pages 391-404, December.
  7. Ansgar Belke, 2010. "How Much Fiscal Backing Must the ECB Have? – The Euro Area is not the Philippines," Ruhr Economic Papers 0184, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  8. Hans-Werner Sinn, 2011. "Target-Salden, Außenhandel und Geldschöpfung," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 64(09), pages 23-25, 05.
  9. Mayer, Thomas & Gros, Daniel, 2011. "Debt reduction without default?," CEPS Papers 4150, Centre for European Policy Studies.
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