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The Greek crisis: Miles to go before they sleep

International Monetary Fund's chief of mission Poul Thomsen addresses the audience at an economic conference in Athens on May 18, 2011.


Even though the Europeans have coined a new term -- soft restructuring -- pressure is still mounting on Greece to do more.

The embattled country has to meet its targets under a joint €110-billion bailout from the European Union and International Monetary Fund, and so far has been unable to do so. Last year, its deficit was more than two percentage points above its target, at 10.5 per cent, and it has a long was to go this year.

On Wednesday, according to Reuters, the IMF's chief of mission to Greece, Poul Thomsen, told a conference in Athens that Greece won't meet its deficit-fighting targets unless it gets even more aggressive. This comes amid continuing protests and violent strikes in the country.

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"The program will not remain on track without a determined reinvigoration of structural reforms in the coming months," Mr. Thomsen said. "Unless we see this invigoration, I think the program will run off track."

Earlier this week, the EU's Jean-Claude Juncker, the prime minister of Luxembourg, got the markets thinking with his suggestion that his group will look at the idea of a "soft restructuring" or "reprofiling" that would push out maturity dates for Greece. Despite what the market increasingly believes, Mr. Juncker rejected the idea of a major restructuring of Greek debt.

"News flow continues to center around Greece and the likelihood of a restructuring or reprofiling and the implications of such for markets and private bond holders," said Scotia Capital currency strategist Camilla Sutton.

"Yields in Greek debt have been surprisingly stable over the last few weeks … However, uncertainty for bond and [credit default swaps] markets remains high. "

Carl Weinberg, the chief economist at High Frequency Economics, who has oft criticized what he sees as a lack of definitive action on the debt crisis, said their could be developments over the weekend at an emergency meeting of European finance ministers.

"EU officials are worrying out loud that reprofiling, soft restructuring -- whatever the heck those things are -- or actual restructuring of Greece's debt burden will raise huge risks and uncertainties," Mr. Weinberg said.

"Of course, they are right. Done incorrectly, or forced by a default, restructuring will trigger credit default swaps on the bonds with unknown and unknowable consequences," he added. "Done properly -- through [bailout fund]bond purchases from the markets and subsequent swap of those bonds for longer-term debt -- a multiyear restructuring of Greece's debt maturity profile can be engineered with acceptable losses to bondholders."

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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