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Lessons from the 2012 Greek debt restructuring

Xafa, M. (2014) “Lessons from the 2012 Greek debt restructuring“, VoxEU Organisation, 25 June.


The 2012 Greek debt restructuring was the largest one in the history of sovereign defaults. This column discusses the lessons from this historically unprecedented episode. Delaying the restructuring implied that externally held debt remained higher than it would have been otherwise. Supportive crisis management is necessary for smooth restructuring to take place in a currency union.


The 2012 Greek debt exchange and subsequent buyback was a key episode in the Eurozone debt crisis (Wyplosz 2010, 2013). It was the largest debt restructuring in the history of sovereign defaults, and the first within the Eurozone. Though it achieved historically unprecedented debt relief – amounting to 66% of GDP – it was ‘too little too late’ in terms of restoring Greece’s debt sustainability (Figure 1). Its historical significance lies not only in its unprecedented size, but also in its timing, size of creditor losses, modalities, and potential for contagion to the rest of the Eurozone periphery.

In a recent paper (Xafa 2014), I examine the Greek debt exchange and the subsequent buyback against the background of the Eurozone crisis, with a view to drawing lessons for any future debt restructuring in the Eurozone and beyond. I find that delaying the restructuring implied that externally held debt remained higher than it would have been otherwise, adding to the transfer of real resources that will be required to service it. Overall, the Greek experience shows that an orderly restructuring is possible in a currency union, but that firewalls and supportive crisis management institutions are necessary for it to take place smoothly, without major contagion effects. The substantial increase in the ESM’s ‘firepower’ and the theoretically infinite backstop provided by the ECB’s Outright Monetary Transactions make it possible to address any future sovereign episode earlier on, while limiting the scope for contagion. With the crisis management institutions and procedures now in place, as well as much stricter fiscal surveillance and ‘bail-in’ of bank creditors, the Greek experience is likely to remain unique in the history of debt restructurings, although some lessons can be learned from its specific features. The current article narrowly focuses on these lessons.


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