4369570346f86f100fd9c801_ve1215c.jpg Chris Van Es

Coco for Europe

After a year and half of delay and denial, Greece is about to restructure its debt. But this by itself will not be enough to draw a line under the eurozone’s existential crisis, for which so-called "contingent convertible bonds," or "cocos," might be the answer.

BERKELEY – After a year and half of delay and denial, Greece is about to restructure its debts.

This, by itself, will not be enough to draw a line under the eurozone’s crisis. Greece will also have to downsize its public sector, reform tax administration, and take other steps to modernize its economy. Its European partners will have to build a firewall around Spain and Italy to prevent their debt markets and economies from being destabilized. Banks incurring balance-sheet damage will have to be recapitalized. The flaws in eurozone governance will have to be fixed.

The indispensible first step, however, is a deep write-down of Greek debt – to less than half its face value. The burden on the Greek taxpayer will be lightened, which is a prerequisite for reducing wages, pensions, and other costs, and thus is essential to the strategy of “internal devaluation” needed to restore Greek competitiveness. Forcing bondholders to accept a “haircut” on what they will be paid also promises to discourage reckless lending to eurozone sovereigns in the future.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

http://prosyn.org/6O5mCjA;
  1. abe10_TIZIANAFABIAFPGettyImages_shinzoabesmilingatcamera Tiziana Fabi/AFP/Getty Images

    The G20 in Osaka

    Shinzo Abe

    Japan is advocating a system of “Data Free Flow with Trust,” an approach that attempts to allow the free flow of data under rules upon which all people can rely. And launching DFFT is just one of four major agenda items that Japan's prime minister has in store for the group's upcoming summit.

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.