DIRECTORATE GENERAL FOR INTERNAL POLICIES

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 costs arising from different policy options – among them a potential 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 the euro area level. Adjusting the numbers and weights would make the same analysis possible for other euro area Member States. IP/A/ECON/NT/2011-02 June 2011 (Part of the compilation PE 464.418 for the Monetary Dialogue) EN