Debt Restructuring in Euro Zone Inevitable: Economists

Demand may be strong for bonds issued by periphery euro-zone countries but those countries must restructure their debt at some point because yields are unsustainably high, two economists told CNBC Wednesday.

Oliver Quilla for CNBC.com Since the Greek crisis, talk of some euro zone debt default has roiled markets.

Fears on the ability of countries such as Greece, Ireland, Portugal or Spain to pay their debts have rippled through the markets since the spring of 2010 when Greece was bailed out with a 110 billion euros ($146 billion) joint European Union – International Monetary Fund aid package.

Last Friday, Ireland was the latest country to roil the markets as analysts worried about the government's ability to pay for a huge bailout for troubled banks.

"When you pay about four points over Bunds, you and I could borrow money," Dr. Irwin Stelzer, senior fellow and director Hudson Institute, told CNBC.

"But the fact is that people are very nervous about the ability of those economies to bear this kind of debt burden," he added.

"I don't see any way that continuation of this, at these interest rates, can go on without some sort of restructuring… the math is very simple: it can't happen," Stelzer said.

The latest European bond auctions on Tuesday enjoyed strong demand, but yields were higher compared with previous similar tenders.

"Yes, you are able to sell bonds at a certain price but sometime you will have to pay this money back," Par Magnusson, chief Nordic economist at RBS told CNBC.

"For instance, how on Earth is Greece ever going to repay 11 percent interest rate with 100 percent debt-to-GDP? That's 12.5 percent of GDP in interest payments alone, had they not been funded by the European facility," Magnusson said.

On Wednesday, Portugal sold 750 million euros in 4-year and 10 year bonds. Like in Tuesday's auctions for Irish debt, demand was strong but yields jumped.

ECB 'Does What It Can'

Following the Greek crisis, the European Union set up an emergency funding facility to deal help euro-zone economies that face problems borrowing.  

The fund, called the European Financial Stability Facility (EFSF), was recently rated triple-A by the three major credit rating agencies.

But Stelzer said the EFSF is not as large as previously thought because of various issues of guarantees and some countries and it would not be able to help countries for a longer period of time.

"Anyone who still looks to the rating agencies for guidance as to the value of some of this stuff really hasn't been reading the newspapers in the past decade," he said.

Some analysts have been arguing that since the European Central Bank decided to step into bond markets and buy sovereign bonds the issue of restructuring euro-zone debt is off the table, because the central bank would buy as much as it needs to keep markets calm.

Magnusson disagreed.

"I think the ECB does what it can," he said. "There has to be restructuring at some point. They're just rolling the snowball ahead of themselves and sooner or later, there may be an avalanche if they don't do anything now."

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