3 WAYS OUT OF GREECE'S DEBT TRAP

Greece’s new “rock star” Finance Minister, Yanis Varoufakis, met with his German counterpart, Wolfgang Schaeuble Thursday, moving the Greek debt crisis on to more conciliatory offers of “debt swaps” and emergency loans. Here are three options that could emerge to alleviate the country’s euro repayment burden and meet cash needs as the existing bailout agreement expires at the end of February. Emergency loans: Greece’s foremost demand is for a short-term financial lifeline to help keep the country solvent over the short term. Mr Varoufakis has called for a “bridging loan” worth around 10-billion euro from the European Central Bank lasting until May. Growth-linked bonds: A portion of Greece’s current debt would be “swapped” with bonds linked to the future growth rate of the economy. If the emergency rescue loans from the IMF and other eurozone countries (not including the ECB) are switched with such bonds, “we will start paying back in full when Greece posts solid [economic] growth,” said Mr. Varoufakis. The attraction of this sort of debt instrument is that it would likely soften the austerity imposed on Greece, while encouraging the structural reforms so craved by Athens creditors. However, a swap would still force Greece’s lenders to take on substantial losses, according to Diego Iscaro at IHS Global Insight. Perpetual bonds: Another widely touted plan could see Greek debt currently owned by the ECB replaced with “perpetual bonds”. These would likely entail issuing new debt with no fixed maturity date. In the aftermath of the First World War, then chancellor Winston Churchill issued a form of perpetual bonds known as consols, which the British government only decided to repay back in full during 2014. Greece is currently required to run a primary budget surplus of 4.5% of its national output in 2016 and 2017 under the eurozone’s bailout rules. Mr Varoufakis has been seeking some relaxation of this target and is promising to meet a surplus target of around 1.5% of GDP. He has also vowed his government will “never” fall into a budget deficit.