Ruhr Economic Papers

Ruhr Economic Papers #273

Ramifications of Debt Restructuring on the Euro Area – The Example of Large European Economies’ Exposure to Greece

by Ansgar Belke and Christian Dreger

University of Duisburg-Essen, 07/2011, 17 S./p., 8 Euro, ISBN 978-3-86788-318-4



The Greek government budget situation plays a central role in the debt crisis in the euro area. The debt to GDP ratio is above 150 percent, while the deficit to GDP ratio exceeds 10 percent. To re-establish the Maastricht criteria, respectively, strong consolidation measures need to be implemented, with potential adverse effects on the Greek economy, and further credit requirements. Therefore, a debt conversion might become a reasonable alternative. The aim of this paper is to provide some simulation-based calculations on the expected fiscal costs for the governments in the large European countries Germany, France, Spain and Italy arising from different policy options – among them a second Greek rescue package. Under realistic conditions, a debt conversion may be the less costly strategy for Greece and the euro area partner states. A value-added of these calculations lies in a potential transfer to smaller euro area member countries.

JEL-Classification: F33, F34, H63

Keywords: Euro area debt crisis; debt conversion; Greece