Even after billions in debt forgiveness and a massive second bailout, Greece still faces a debt to GDP ratio of at least 100 percent, Charles Dallara, managing director of the Institute for International Finance, told CNBC in an exclusive interview Monday.
The IIF, an organization representing hundreds of banks around the world, announced last week a private-sector financing offerfor Greek debt held by banks and other private lenders.
The offer is intended to reduce Greece’s debt burden, which currently stands at 140 percent, and is the highest in Europe.
The private-sector financing is part of a larger aid package announced by the European Union last week, which increased the amount of public-sector funds to Greece by 109 billion euro, gave the country more time to pay back its previous EU/International Monetary Fund loans, and lowered the interest rates on those loans.
Greece has more than 350 billion euro in loans, which it has struggled to pay. The country was struggling to make interest payments earlier in the summer.
The financing offered by the IIF has come under heavy criticism for not being forgiving enough. Many economists believe Greece’s debt-to-GDP ratio needs to be closer to 70 percent for the country to be able to recover.
But Dallara counters that if Greece can grow, and he believes it can, the country’s debt levels will be what economists call a “sustainable level of debt.” Others have criticized the private-sector offer as actually being a gift to the large European banks.
The offer asks private-sector lenders to take a loss of 21 percent, but much of Greece’s debt was trading at a 50 percent discount.
Dallara argues that it all depends on the duration of each particular bond, and that European officials did not want something that triggered a significantly negative move by the ratings agencies.
Under the current terms, the ratings agencies are likely to label Greece as under “selective default.”
You can see the official debt offering here.