Ramifications of debt restructuring on the euro area – The example of Germany’s exposure to Greece

This document was requested by the European Parliament's Committee on Economic and Monetary Affairs.

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 costs 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 the euro area level. Adjusting the numbers and weights would make the same analysis possible for other euro area Member States.

http://www.europarl.europa.eu/document/activities/cont/201106/20110629ATT22867/20110629ATT22867EN.pdf