Greece's debt problem explained

PUBLISHED ON FEB 4, 2015 10:10 PM

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Greek Prime Minister Alexis Tsipras (left) and Finance Minister Yanis Varoufakis. -- PHOTOS: EPA 

BY ANN WILLIAMS

The austerity-fighting duo of new Greek Prime Minister Alexis Tsipras and sidekick, Finance Minister Yanis Varoufakis, are now touring European countries in a bid to win support for their plan to restructure - for the third time - the country’s massive debt bailout.

Here are five things to know about Greece’s debt problem:

1. How much Greece owes

Its total public debt amounted to 315.5 billion euros (S$486.5 billion) at the end of September 2014.

2. Who is its largest creditor

Eurozone governments and the crisis-fighting fund they set up in 2010 are owed almost 195 billion euros by Greece, mostly in emergency loans. That’s about 62 per cent of the total debt and compares with 17 per cent held by private investors.

But governments and national central banks are also contributors to the European Central Bank (ECB) and the International Monetary Fund (IMF) so taxpayers will also be exposed should Greece default on loans from those institutions.

3. What is Greece proposing to do about its debt?

The new Greek government has said it will not abide by the old bailout deal and wants to renegotiate the debt repayment plan. But it seems to have abandoned the idea of asking for a debt reduction.

Greece is now floating the idea that Greek bonds held by the ECB and part of the debt owed to eurozone governments - 53 billion euros worth - could be swapped for either bonds linked to Greece’s economic growth, or perpetual bonds that have no maturity date but command higher interest rates.

4. How can the new plan help Greece and its creditors?

For creditors, the debt swaps would avoid the need to accept losses on Greece’s 315-billion-euro debt that would result from a Greece debt default or a debt reduction. For Greece, it would ease the monthly financing burden.

5. Why it may be rejected

Critics say the proposal to swap its foreign debt for growth-linked bonds is a disguised form of debt forgiveness, as like any other kind of debt conversion or extension of maturities, it will reduce the debt’s cash value.

It would also lead to other debtor nations not honouring their commitments and wanting to renegotiate their deals.