Back in the spring it was already clear that, given the backdated introduction of collective action clauses, the private sector haircut to the tune of EUR 107bn (53.5%) would be realized practically in full and that around EUR 50bn would probably be needed to recapitalize banks and offset Greek pension fund losses. We had therefore estimated the net impact of the haircut on Greek debt at EUR 50bn. In its March 2012 report “The Second Economic Adjustment Program forGreece” the EU Commission had calculated that Greek government debt at the end of 2012 at EUR 327bn would be around EUR 29bn lower than at the end of 2011. Greece’s government deficit in 2012 had been put at just below EUR 15bn, meaning that the EU Commission estimated the reduction in the overall debt level thanks to the haircut at close to EUR 44bn (including other relevant special factors).
In the projections contained in the latest EU Commission report of November 2012 (draft based on the October 2012 Troika mission) Greek debt will fall by only EUR 11bn in 2012, even though new borrowing at EUR 13½bn comes in somewhat lower than estimated in the spring. This means that debt relief from the haircut amounts to only EUR 24½bn. This can hardly be attributable to higher than expected bank recapitalization needs as the report states that, according to the Bank of Greece, the agreed envelope of EUR 50bn still matches requirements. It is also conceivable that other relevant factors – apart from debt redemption – have been recalculated. But an explanation is nowhere to be found in the 115-page EU report.
It would be of considerable interest to glean more details about the impact of the private sector involvement on Greek government debt. The significantly higher than expected debt level shown at present creates the impression that the haircut provided far less relief than calculated. Given the political import attached to the Greek debt ratio with regard to fiscal sustainability, transparency should be established as swiftly as possible.