Germany Rejects Calls for Greek Debt Haircut
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Germany’s finance minister has dismissed a report that the troika could be considering a Greek debt haircut aimed at reducing the country’s massive debt load, arguing that it would not be economically viable nor legally plausible.
Germany’s finance minister has dismissed a report that the troika could be considering a Greek debt haircut aimed at reducing the country’s massive debt load, arguing that it would not be economically viable nor legally plausible.
As part of a strategy to bring Greece’s public debt back to 120 percent of GDP by 2020, the troika plans to call on European governments and official creditors to write off a chunk of its loans, opening the way for first taxpayer losses since the sovereign debt crisis began, according to a draft version of the troika report obtained by German newsweekly Spiegel.
However, German finance minister Wolfgang Schaeuble said in an interview yesterday that the idea of taxpayer “haircuts” is unrealistic.
He told German radio station Deutschlandfunk:
[quote] That is a discussion which has little to do with the reality in the member states of the eurozone. [/quote]
Schaeuble said sovereign states could not legally write off billions of euros of losses on their official holdings of Greek government bonds. However, he said Greece could consider buying back some of its debt from bond holders via a debt repurchasing programme.
“That is a consideration that one can make seriously. It has been put up for discussion by some members of the central bank board,” he said.
Schaeuble reiterated no agreement had been made on how to help Greece implement austerity cuts after Greek finance minister Yannis Stournaras said international lenders had agreed to give Athens additional time to carry out its austerity programme.
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European Central Bank president Mario Draghi also said the ECB cannot accept write-downs on its estimated 40 billion euros holding of Greek debt since that would amount to illegal state financing.
[quote] However, the ECB – which is a part of the troika along with the International Monetary Fund and the EU – is prepared to forgo profits on its Greek debt holding, Spiegal said. [/quote]
Private sector creditors were forced to accept a 50 percent loss on Greek bonds as part of the second Greek bailout package negotiated earlier this year.
But public sector losses are politically sensitive topics in Europe, particularly in Germany. Chancellor Angela Merkel has told her country’s taxpayers that the bailout loans to southern Europe entail no risk and have been profitable to date.
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