Debt restructuring

By THIS IS MONEY
Updated:

 

The Daily Mail City team explains this economic equivalent of defibrillation

What's that?

It is a process that allows a company or country facing financial problems to reduce or renegotiate its debts so it can carry on operating.

Old debts which it cannot pay are replaced by new ones which it can.

Are we talking about Greece?

Yes. Athens was forced to take a bailout worth almost £100bn from the EU and IMF a year ago because it could not pay its debts and was unable to raise vital funds on the international money markets.

But now Greece looks unable to meet the terms of the bailout, and a 'restructuring' could be on the way.

Is it the same as a default?

No. A default is when a country chooses not to (or cannot) pay its debts, and therefore doesn't.

Early last year, there was a lot of concern that Greece would not meet its debt obligations. This saw panic spread through the financial markets, because a default would hit banks that lent to the stricken country.

That prompted European governments to club together with the IMF to stave off a possible Greek default.

So will restructuring work?

For now, perhaps.

But it is probably not an appropriate solution in the long run. Greece must cut spending and increase tax revenues to put its finances on an even keel.

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