Greece: Past Critiques and the Path Forward

  • Moreover, private creditors were not off the hook, and, in 2012, debt was substantially reduced: The 2012 private sector involvement (PSI) operation led to a haircut of more than 50% on about €200 billion of privately held debt, so leading to a decrease in debt of over €100 billion (to be concrete, a reduction of debt of 10,000 euros per Greek citizen).
  • .. To take an extreme case, if the European creditors were willing to simply forget all existing debt and extend further financing, there would be little need for more adjustment.  But, clearly, there were and are political limits to what they can ask their own citizens to contribute.
  • .. The introduction of a new currency, and of redenomination of contracts, raises extremely complex legal and technical issues, and is likely to be associated with a further large decline in output.  It may take a long time for the depreciation of the new currency to lead to a substantial turnaround.