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Greek debt sustainability: The devil is in the tails

Consiglio, Andrea, Zenios, Stavros, (2015), “Greek debt sustainability: The devil is in the tails”, Voxeu, 12 Αυγούστου

Some experts view Greek debt as sustainable, while others claim it is not sustainable. This column argues that the distinction between tactical and strategic debt sustainability can explain this difference of opinions. Moreover, strategic debt sustainability analysis should account for tail risk. This approach shows that Greek debt is highly unsustainable, but sustainability can be restored with a nominal haircut of 50%, interest rate concessions of 70%, or a rescheduling of debt to a weighted average maturity of 20 years. Greece and its creditors should ‘bet on the future’ and embrace debt relief.

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