Greece and Ireland should restructure their debt as part of a bailout, , the chairman of Roubini Global Economics, has said.
The countries are “on a path to near or complete insolvency”, Roubini says in a comment piece in the Financial Times, and need to find a means to reduce their payments to lenders.
Roubini argues international authorities should negotiate a restructuring prior to a bailout in the manner of recent interventions in the Dominican Republic, Pakistan, Ukraine and Uruguay.
If authorities make a reasonable offer to bondholders, Roubini says, they can stall a sell-off and persuade the vast majority to accept.
However, the tactic has not worked recently in the developed world, most recently in the bankruptcy of General Motors, where the American government wiped out bondholders after they failed to agree on restructuring terms. (article continues below)
Ireland also attempted and failed to negotiate discounts on its payments to bondholders earlier this autumn.
In the absence of the voluntary restructuring proposed by Roubini, a forced restructuring would be seen as equivalent to a default under current legislation.
Imposing a restructuring to pre-empt a hypothetical default would also be legally problematic, as courts do not consider hypothetical situations to be admissible evidence in a case.