Call it the Great Stretch. Two years ago, Greece's debt crisis almost brought the euro zone crashing down. Now European partners are preparing to ease Athens' debt burden without writing off their loans but by stretching them out into the distant future, extending maturities from 30 to 50 years and further cutting some interest rates, EU officials say.
Greece made a successful, if artificially engineered, return to the long-term capital markets last week for the first time since its international bailout in 2010, and just two years after imposing heavy losses on its private creditors.
But with its economy shattered, the country is still a long way from being able to fund itself unassisted in the market. The International Monetary Fund says Greece is likely to need further financial help from the euro zone over the next two years.
One reason why the sale of 3 billion euros in five-year bonds at a yield of 4.95 percent went so smoothly, on the eve of a support visit by German Chancellor Angela Merkel, was that investors are widely anticipating official debt relief.
"That has been quite substantially priced in, and the market is also expecting Greece to be quickly upgraded by the credit rating agencies," said Alessandro Giansanti, senior rate strategist at ING bank in Amsterdam.
"In a second stage, the market is also expecting a reduction in principal on official debt, and no private sector involvement (write-down) in the coming years," he said.
Whether such expectations are fully realised will only become clear later this year, when negotiations start with the euro zone and the IMF on Greece's longer-term funding, and the end of its wrenching bailout programme.
But EU leaders share an interest in helping conservative Prime Minister Antonis Samaras' shaky coalition cling to office rather than seeing leftist anti-bailout firebrand Alexis Tsipras sweep to power demanding a massive debt write-off.
"EXTEND AND PRETEND"
North European creditor states strongly oppose outright debt forgiveness, which critics say would unfairly reward past Greek mismanagement. Parliaments and eurosceptics might rebel or challenge any write-off in court.
But extending the maturities and cutting the borrowing cost has already been done once - the loans were originally granted for five years at a punitive interest rate - and it is less politically explosive in Germany, the Netherlands and Finland.
It is a government version of the "extend and pretend" behaviour of private lenders who keep bad loans on their books, hoping something will turn up, rather than writing down losses.
"This kind of restructuring of official sector debt has already quietly been happening," said Elena Daly, principal at EM Consult, a Paris-based sovereign debt consultancy.
"Stretching out the official sector loans and reducing their interest rates opens a window for new private sector lending without fear of competing with existing official sector creditors when the time comes for repayment," she said.
A country's debt profile - the timeline of future repayment or refinancing obligations - is more important to investors than the absolute size of its debt stock.
Asked what European authorities planned to do about the mountains of official debt owed by Greece, Ireland and Portugal, a senior EU policymaker replied with a riddle.
Who was Britain's prime minister, he asked, when it paid off its World War Two lend-lease debt to the United States? The answer is Tony Blair in 2006, more than 60 years after the war ended. Indeed, Britain still has some World War One debt to Washington outstanding, a century after that conflict began.
HAND BRAKE
After two EU/IMF bailouts worth a total of 240 billion euros and a "voluntary" write-down of privately held bonds, Greece has a public debt equivalent to 175 percent of its national output, far beyond what the IMF considers sustainable.
Gross domestic product has slumped by 25 percent, wages and pensions have been cut sharply and unemployment stands at nearly 27 percent, including more than half of all young people.
With anaemic growth just starting to return, there is scant prospect of reducing the debt to the targets set by the "troika" of international lenders of 124 percent of gross domestic product in 2020 and 110 percent in 2022.
Interest payments swallow nearly 5 percent of Greece's GDP, twice as much as in France. Ireland and Portugal, which also received euro zone bailouts, are also paying between 4.5 and 5 percent of their national income in debt service.
Italy, which did not take a bailout but has the euro zone's highest debt ratio after Greece at 132 percent, pays 5.3 percent of GDP in interest payments - a huge burden.
It would require improbable economic growth rates for many years to bring those debt numbers down substantially, forcing governments to run high primary budget surpluses before debt service that crowd out public investment.
Trying to revive an economy while meeting that level of debt service is like accelerating with the hand brake on.
Once the EU statistics office confirms in the coming weeks that Greece has achieved a primary budget surplus before debt service costs, the road to official debt relief should be open.
Ironically, last week's dabble in the bond market may make it harder for Athens to win a debt write-off that would hasten its recovery. With foreign investors piling into the euro zone as a relative safe haven compared to emerging markets, the risk premium on weaker European countries' sovereign debt over benchmark German bonds has fallen almost to pre-crisis level.
German officials are already saying there is no urgent need for debt relief. As throughout the euro zone crisis, once the market heat is off, Berlin is reluctant to act.
EU officials say the Great Stretch may not be extended beyond Greece to Ireland, which has already returned to market funding, or Portugal, expected to exit its bailout programme next month without requesting further official assistance.
Yet it would make sense to grant the same terms to them too to speed their post-crisis recovery and narrow Europe's politically dangerous north-south divide.