‘Greece needs another write-off’

Only another write-down of Greece’s debt will help stabilise the country financial situation, a just-departed director for India at the International Monetary Fund said.

Arvind Virmani, who represented India at the IMF for three years until the end of October, told AFP that Greece’s lenders must agree to a new write-off to avoid a full-scale default that could rock the Euro zone.

“It has been my view since early 2010 that the Greek debt cannot be made sustainable without a drastic debt write-off (politely referred to as restructuring) no matter what policy reforms the Greek government undertakes,” he said in an email yesterday.

“The greater the delay the more the cost to remaining creditors... and the Greek public.”

“The stronger euro countries have refused to acknowledge this fact, even after the IMF started, perhaps a little reluctantly, to recognise it,” he said.

Speaking as Greece seeks a new deal on its bailout, Virmani argued that giving the country more money would only serve to pay back reckless lenders who helped it get so deeply into debt in the first place.

He did not specify where the write-down should come from — private creditors to Greece who have already given up more than half the value of their holdings, or official institutions like the European Central Bank and European governments.

But he suggested that countries like Germany, whose banks helped fuel Greece’s massive borrowing spree but then dumped its debt, should “make a greater contribution to the debt write-off.”

Virmani, an economist and former senior Indian official, faulted the extreme austerity approach to restructuring that has underpinned the bailout loans of the IMF, ECB and European Union to Greece, Portugal and Ireland.

Such an approach has, at least in Greece’s case, sent the country deeper into recession, leading to the IMF’s recent calls for more forbearance so that growth can be restored.

“As the saying goes, ‘better late then never,’” said Virmani.

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