Debt-laden Greece is likely to need another round of debt reduction, possibly on public bondholders, when its second bailout program expires in about five years, a researcher from the influential Brussels-based Bruegel think-tank said.

"The current debt reduction is likely to be insufficient," Zsolt Darvas, a research fellow at Bruegel, told Xinhua in an interview, referring to a bond swap with private creditors Greece launched last week to wipe some 100 billion euros (about 134 billion U.S. dollars) off its 350 billion euros debt pile.

DEBT REDUCTION NOT SUFFICIENT

Greek public debt is estimated to jump to 198 percent of its GDP this year from the current 160 percent, according to the European Commission. "Very high primary surplus would be needed to reduce this. My fear is there is a high chance of this reduction not being sufficient," said Darvas.

"I would have preferred a higher level of debt reduction on the private sector, maybe 75 percent, rather than the current 53.5 percent. If the debt reduction were done a year earlier, 50 percent reduction would have been enough," he added.

Under a new bailout plan struck earlier this month, Greece's liabilities would be cut to 120.5 percent of its GDP by 2020 provided Greek authorities are able to implement all the austerity measures and structural reforms they promised.

Darvas, who called for a restructuring of Greek debt in early 2011, said, "120 percent debt of GDP is still very very high."

"I wouldn't say that a new debt restructuring is bound to happen because, for example, if Greek GDP growth sped up to 5 percent a year, in principle, Greece would be able to borrow from the market from 2021," Darvas stated.

But this is very unlikely to happened because the recession is expected to last long, he said, adding that economic growth in Greece might be weak till the second half of the decade.

The Greek economy, in its fifth year of recession, will contract 4.4 percent this year according to the latest European Commission forecast.

Darvas said future Greek economic performance would very much depend on how the structural reforms evolve and how successful they are.

OFFICIAL SECTOR LIKELY TO BE INVOLVED

How the Greek economy evolves during the second half of this decade will also determine whether the official sector -- which includes central banks and national governments -- will be involved in another possible round of debt reduction.

"I feel the official sector might also need to write down some of its debt as the privately-held Greek debt is small," Darvas said.

He stated the public sector can ease the terms of lending in order to avoid an outright reduction in the nominal value of its bonds, including lowering interest rates further and giving up amortization payment for one decade.

The expert also viewed the decision to exempt the European Central Bank (ECB) from current debt reduction arrangements as a mistake. According to the bailout deal, the profits foregone by the ECB would go to the national central banks of eurozone countries, which would use the money to lend to Greece.

"It is not a wise decision. First of all, it was a mistake for the ECB to start to purchase the bonds of a country which had a solvency problem and not a liquidity problem. If you purchase bonds of a country with solvency problems, sooner or later, there will be a loss."

The ECB's decision to be exempted from the debt reduction would sap private investors' appetite by making it seem it would never face a loss when there is a default, he said.

Other eurozone countries like Italy and Spain would also be affected by the ECB's decision to hold a country's debt as it would mean private investors may face higher losses in the event of a default, Darvas added.