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

19 Pages Posted: 8 Aug 2011

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

Date Written: July 1, 2011

Abstract

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 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.

Keywords: Euro area debt crisis, debt conversion, Greece

JEL Classification: F33, F34, H63

Suggested Citation

Belke, Ansgar Hubertus and Dreger, Christian, Ramifications of Debt Restructuring on the Euro Area - The Example of Large European Economies’ Exposure to Greece (July 1, 2011). Available at SSRN: https://ssrn.com/abstract=1906631 or http://dx.doi.org/10.2139/ssrn.1906631

Ansgar Hubertus Belke (Contact Author)

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Christian Dreger

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

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