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WSJ: Greek Debt Restructuring More Likely After Breakdown In Talks

Debt Restructuring, ‘sees’ the “Wall Street Journal”, after the interruption of discussions of Greek government with the Troika. In her extensive current publication it reports:
The breakdown in Greek debt talks on Friday increases the likelihood that Athens’s sovereign debt will be restructured within months and indicates a second bailout program may not materialize, according to people familiar with the matter.
Greece failed to meet both fundamental and trivial conditions of a EUR110 billion loan from the European Union and International Monetary Fund. EU, IMF and Greek officials unexpectedly halted talks Friday in the middle of a review of the program, announcing negotiations would continue later in the month.
Besides projected fiscal deficits widening far beyond what the IMF-EU program allows, Greece has failed to reach its targets on raising revenue through privatization of state assets, and even neglected to achieve simple bureaucratic requirements.
The failures gave weight to questions about Athens’s ability–and even commitment–to meet the program conditions,
“I expect a hard default definitely before March, maybe this year, and it could come with this program review,” said a senior IMF economist who is not with the Greece mission but is keeping close tabs on the situation. “The chances for a second program are slim,” the economist said.
Failure of Greece to meet its targets, growing reluctance by some euro members to continue lending and the fact that private sector participation in a second bailout won’t significantly alter Greece’s debt profile are the primary factors, the IMF official said.
Jacob Kirkegaard, a fellow at the Peterson Institute of International Economics and an expert on Europe’s sovereign debt crisis, said he believes the IMF and EU will cough up the next tranche of cash this month under the existing program for Greece. That will buy time for European parliaments to approve a July 21 agreement that will bolster its EUR500 billion crisis facility, the European Financial Stability Facility.
But he thinks it highly unlikely the IMF will approve a second program given the situation in Greece, especially if there isn’t the 90% private sector participation a new loan was based on.
It may be more attractive for Athens in the long term to force a hard default, he said.
A hard restructuring that pays, for example, 60 cents for every euro of Greek debt, may make more sense to Athens than the existing voluntary private sector proposal agreed in July between banks, the EU and Athens.
“The economics for Greece to do a hard restructuring are compelling,” he said.
(source: WSJ, Dow Jones)

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