The arithmetic gets better and better

Over at WSJ marketbeat, they report on Goldman Sachs' latest thinking re the Greek restructuring. They seem to have concluded that the proposed 50% haircut is not enough to return Greece to debt sustainability:

In our view the key problem lies with the structure of the PSI itself, namely the insistence on a 50% reduction in face value for bond holders. From an investor’s perspective, a 50% haircut reduces both the final payment but also the coupon payment. Thus the impact on the NPV of the bond is much larger than 50%. The voluntary nature of the deal assumes some incentive for investors. Thus, the IIF have suggested an increase in coupons for the new bonds in order for investors to be compensated in terms of cash flows at least.

 The problem, of course, would be that this by itself undermines sustainability -- higher coupon payments mean bigger deficits. As GS points out, what Greece needs is the exact opposite: lower coupon payments right now, so that the worst of austerity can be undone. Once growth resumes, and interest rates fall a bit, sustainability will look a lot better quite quickly. I guess there is something not altogether great about thinking up restructuring rules as a fly-by-night operation between a handful of overwrought, half-numerate politicos...