Even with a bailout, Greece's debt must be tackled

Write down, write off, restructure, reprofile whatever term you choose, if Greece doesn't completely default on its debt, its creditors will have to address the issue of its massive debt.

Sunday's referendum is being framed by many as being about whether or not Greece stays in the eurozone, but debt is the underlying issue.

At over 300 billion euros ($330 billion), Greece's debt represents some 180 percent of GDP -- nearly two years' economic output.

As part of its bailout Greece has slashed spending, pensions and wages while hiking taxes to generate funds.

But at a severe economic and social cost: a quarter of the economy was wiped out in a five-year recession, unemployment more than doubled to 25.6 percent and pensions and benefits were roughly halved between 2010 and 2014.

The radical left Syriza party rode to power in January elections on an anti-austerity groundswell. Its desire to let up on austerity, combined with Greece's now poorer economic perspectives, means that the country's debt is no longer sustainable, if it ever was before.

Economist Charles Wyplosz said that from Greece's first bailout in 2010, the bailout programme "should have started with a reduction in debt. Now in 2015 it is even more necessary and urgent."

For him, not to have attacked Greece's debt from the start was "a fundamental error" by the creditors.

Moreover, Greece's debt load has increased, as austerity caused a slump that wiped a quarter off national output and the bailout took the form of loans, not grants.

Greece's debt has shot up from 130 percent of GDP in 2010 to 180 percent now, even though private-sector debt was written down under a restructuring worth more than 100 billion euros in 2012.

If Greeks vote 'No' on Sunday and there is no temporary assistance forthcoming, Athens will have to keep banks closed and may default on more payments.

The government would be under intense pressure to reintroduce the drachma or some temporary currency to pay wages.

But the currency would likely quickly drop in value, making Greece's euro-denominated debt impossible to pay, forcing Athens to default.

This would force creditors to write off Greece's debt, acknowledging they'll never get the money back.

A 'Yes' vote opens the way to a variety of options for dealing with Greece's debt.

One is to continue with a similar policy that creditors have insisted Greece pursue these past years: run budget surpluses to repay debt.

But the amount of the required surpluses could be reduced to ensure Greece's economy grows, as would the level of debt that Greece has to pay -- a "reprofiling."