The Centre for European Policy Studies (CEPS) recently unveiled its report on the evaluation of a French proposal for a restructuring of the Greek debt. The think-tank’s report, signed by Christian Kopf, noted that if the French proposal was implemented under the proposed parametres, private creditors would only suffer a minimal "haircut", while official lenders would be provided with cash-flow relief of around 20 billion euros over the next three years, although the solvency of the Greek state would worsen significantly.
Under the French proposal, Greece’s interest payments on public debt will amount to 8.6 pct of GDP in 2014.
The costs of this magnitude are outside the range of debt servicing expenditures that advanced economies have sustained over the past 15 years. There are only four out of 110 countries rated by Moody’s that have faced public debt service in excess of 8.5 pct of GDP in recent years.
These countries have been able to alleviate their public debt service through debt restructuring (Jamaica and Lebanon) or through devaluation, inflation and rapid growth (Turkey and Iceland). In all four countries, most of the government debt has been held by domestic agents, sometimes even by state-owned banks. In the case of Greece, devaluation and inflation are impossible under the current monetary regime, rapid growth is quite unlikely, whereas financial repression is also not an option, as most of the government debt is held by foreign investors.
Kopf’s analysis concludes that the French proposal would not allow for any debt service relief - to the contrary - it would significantly increase Greece's debt burden. “From Greece’s perspective, it is difficult not to regard the initiative in its current form as an insult,” Kopf said.