Will This Debt Restructuring Plan Help Greece?


A fresh idea is being tossed around to handle Greek and other European countries’ debt in the face of economic failure — a way to avoid taxpayers across the bloc constantly getting stuck with the costs of propping up under performing economies.

The idea is being promoted by Ashoka Mody, a former deputy director at the International Monetary Fund, and it hopes to redefine the way the debt restructuring process works for struggling countries. Specifically, his plan would automate losses for private backers of sovereign debt in the scenario that such a nation went over a predetermined amount of debt to GDP. This would give investors the proper foresight and sense of preparedness with their money in the case of a country defaulting, or require emergency funding from the EU, avoiding putting them at odds with countries who have similarly backed their ailing counterparts.

Germany, for one, has refused to consider further alleviation of Greece’s debt obligation to the bloc’s largest economy, creating a tense situation between it and the International Monetary Fund — one of Greece’s three major lenders. The IMF has asked European countries┬áinvested in Greece to take another hit on their debt, while at the same time pressuring Greece to reform faster so as to shore up its own debt problem so that they might lend a hand to investors already crushed by investment in Greek debt.