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May 03, 2011 at 07:11 AM
A year and a day ago, Greece received a bailout from the European Union (EU) and the International Monetary Fund (IMF), and since that time the cost of borrowing money has risen steadily for Athens, with the yields on 10-year bonds standing currently at 15.5%—almost 12% higher than the yield on equivalent German Bunds.
For shorter-term debt, the situation is even worse, with the yield on 2-year bonds at 25.7%. Such a level is considered unsustainable, making it appear that Athens will have no other alternative but to restructure its debt.
However, according to a Reuters report on Tuesday, Greece's finance minister insisted that the country would not benefit from a restructuring; indeed, he said the opposite would be true. "A restructuring, haircuts on debt, would be a huge mistake for the country," Finance Minister George Papaconstantinou said on Greek television even as EU and IMF inspectors arrived to determine whether austerity plans proposed by the Greek government will be up to the challenge the country faces.
"It would have a very big cost," added Papaconstantinou, "and we would not have the benefit, we would stay out of markets for 10-15 years, the wealth of Greek pension funds would suffer writedowns, we would have problems in the banking system and hence the real economy."
