How to ease Greece's debt burden: lower interest rates, longer repayment dates or a simple cut

FRANKFURT – As things stand now, Greece can’t pay its debts. That’s what more and more people — including now the International Monetary Fund and even, it seems, Germany’s finance minister — are saying.

So what to do?

Greece’s creditors have indicated they could agree under certain conditions to ease the terms of Greece’s debt, which stood at 317 billion euros ($355 billion) as of the end of last year.

About 80 per cent of that is owed to the other eurozone governments, the IMF and the European Central Bank. So a debt restructuring there wouldn’t hurt investors, roil markets, or destabilize banks.

Here’s what they could do:


Creditors could stretch out the loan repayment dates, as they have already for some of them. For instance, final repayment of the last of 52.9 billion euros in loans from a 2010 bailout has already been extended from 2026 to 2041. The IMF has proposed doubling repayment periods on other loans to 40 years.


Greece could be given a grace period — an amount of time before it has to start repaying its loans. The IMF recommends doubling the grace period on some of its loans to 20 years.


Interest rates, usually set in relation to common market interest rate indexes, could be lowered, or capped at today’s very low levels.


Loan principal could be forgiven, though that faces political resistance from creditor countries. A recent analysis by the IMF said that under conservative estimates of Greece’s ability to pay, actual debt reduction — so-called haircuts — would be necessary to get the country’s debt level trending convincingly downward.

Even Germany’s Finance Minister Wolfgang Schaeuble, perhaps the toughest creditor representative, said Thursday that the debt can’t be paid without a haircut, although he noted that is not allowed under European Union rules.


Long-term, the best way to reduce debt is growth, which shrinks the debt pile compared to the size of the economy. Creditors have pressed Greece to tackle the red tape and corruption choking their economy.