Is the writing on the wall for Greece?

The European Commission is vehemently denying that Greece needs to restructure its €327bn sovereign debt amid louder calls from economic experts suggesting that Athens cannot cope with the burden, writes Rikard Jozwiak.

Taking a hardline stance - Amadeu Altafaj Tardio, spokesman for the European Union's Monetary Affairs Commissioner Olli Rehn, is clear in his dismissal of the market noise and speculation. "The possibility of that restructuring in Greece is not on the table it is not considered by the commission," he says. "We support the programme that Greece is implementing to restore the public finances."

Greece accepted an EU-International Monetary Fund loan worth €110bn euro last year, with the promise to undergo severe public sector cuts and an ambitious privatisation package. And signs of economic improvement are still scarce, with the spread between yields on Greek 10-year bonds and yields on similar German bonds widening to more than 12 percentage points. Only last week, Athens reported a budget deficit of 10.5 percent, which was higher than the 9.4 percent of just a couple months ago.

The Hellenic troubles have prompted talks of debt restructuring, a move that German Finance Minister Wolfgang Schaeuble failed to rule out this month. He also admitted that a restructuring could happen before 2013, when the rescue package for Greece expires. But EU institutions are, though, still denying the likelihood of this happening. The European Central Bank recently warned that a Greek-debt restructuring could cause a eurozone crisis worse than that, which resulted from the bankruptcy of the American investment bank Lehman Brothers in 2008.

Tardio predicts additional other problems. "The side-effects of such a restructuring would be devastating for the Greek economy in terms of restoring the confidence among market participants and it would not solve the fiscal problems the country would have," he says. Although, Tardio does offer a possible lifeline by suggesting that the programme agreed with Greece can "undergo adjustments if necessary".

Chief economist at the Brussels think-tank the European Policy Centre Fabian Zuleeg understands the commission's reluctance to discuss the issue of restructuring in public, but he believes that such a move "at some point in time it will be unavoidable". He adds: "The commission will have to make some sort of preparation together with Athens and the creditors. There is simply no way that Greece will be able to pull-out in the current situation."

Zuleeg says that he is in favour of a "mild" restructuring - including giving more leeway for possible due dates rather than going for a broad default, adding that in the end the market will force the EU institutions to act. "Economic reality creates its own momentum," he insists. "The solution will become dependent on the market."

Meanwhile, Cinzia Alcidi of the Brussels think-tank Centre of European Policy Studies thinks that the German Chancellor Angela Merkel ultimately hold the key on whether a restructuring will be necessary or not – stating: "There will be a trade-off. The citizens are for a restructuring, but it can trigger possible problems in the German banking system".

Despite this, she rejects the idea that a restructuring would create the apocalyptic economic crisis that the ECB is warning against. "Markets are already expecting a restructuring," says Alcidi. "The question is more - if it is going to be before or after 2013. It is enough to look at the numbers. They are simply really bad, you have to look at the size of the debt and the possibility of the Greek government to recover to see that the end-game is restructuring." The writing is on the wall for Greece, it would seem.