The Vice Chairman for Global Capital Markets at Morgan Stanley Reza Moghadam has requested that 50% of the Greek debt be written off. Mr. Moghadam was the IMF’s European Department Director until 2014 and supervisor of Poul Thomsen.
In a letter he sent to the Financial Times on the 26th of January, Mr. Moghadam admits that both Greek bailout programs (of 2010 and 2012) were based on overly optimistic assumptions on growth, inflation, fiscal efforts and social cohesion. The former IMF officer also assumed his share of responsibility, as he was involved in the troika talks between 2010 and 2014.
When asked about Greece’s future, Mr. Moghadam clarified that a Grexit is in nobody’s interest; on the one hand Greece would suffer from a new drachma, while on the other hand the markets would begin to reevaluate their opinion on other weak Eurozone economies. Mr. Moghadam also warned that the debt will be even less sustainable if it is to be paid in drachmas.
Despite the major fiscal reform and greatest restructuring of the private debt in history, the debt remains excessive compared to projections on fiscal surpluses, which directly affect social cohesion and thus any prospects of a financial recovery. Mr. Moghadam believes that on a political level the recovery is impossible, as the excessive debts block investments and create mistrust.
As such, Mr. Moghadam argues that a significant haircut is necessary, in exchange for reforms. Should the debt be less than 110% GDP, as agreed in 2012, then it will became sustainable. The Morgan Stanley officer then underlined the importance of Europe overcoming its taboos on debt relief.