- Special Pages
HELSINKI/BRUSSELS: The European Union’s top economic official sought to rule out any write-off of Greece’s debt to governments yesterday after a European central banker said for the first time that a “haircut” on part of it was probable.
A row between eurozone governments and the International Monetary Fund over how to make Greece’s giant debt mountain manageable is holding up the release of ¤31bn ($39.5bn) in emergency loans needed to keep Athens afloat.
IMF officials have argued privately that some writedown for euro zone governments is necessary to make Greece solvent but Germany, the biggest contributor to the bloc’s bailout funds, has repeatedly rejected the idea of taking a loss on holdings of Greek debt, saying it would be illegal.
EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Helsinki: “The solution will be a combination of various elements, one is not enough. But it is essential that the principal not be touched. There is a strict unanimity on this within the euro zone.”
Rehn’s comment contradicted European Central Bank Governing Council member Luc Coene, who was quoted by a Belgian daily as saying that a partial writedown of Greek debt was likely to happen eventually. De Standaard said Coene made the comments in a debate with students at Ghent University on Wednesday. It did not publish a full quotation of his remark.
Greece’s total debt is forecast to rise to 190 percent of gross domestic product next year, meaning it is highly unlikely to fall back to 120 percent of GDP by 2020, the level the IMF has said is the maximum sustainable in the long term. Banks, insurers and other private investors holding about ¤206bn of Greek bonds took a savage “haircut” on the nominal value of their securities earlier this year.
The eurozone’s debt crisis began in Greece three years ago when a newly elected government disclosed that the country had knowingly understated its budget deficit.
Athens managed to sell nearly ¤1bn in short-term bills yesterday to complete raising the 5 billion euros it needs to pay off maturing paper on Friday and avoid default.
But the government desperately needs the next tranche of its international bailout loans to recapitalise its banks and pay civil servants and suppliers.
A senior eurozone source said that finance ministers of the 17-nation currency area would only attempt to close Greece’s financing gap to 2014 when they meet again in Brussels next Tuesday, instead of finding a solution up to 2020 as sought by the IMF.
“We will concentrate on 2013 and 2014. The sum is about ¤13.5bn ($17.2bn),” said the source involved in negotiations.
That might postpone a longer-term solution to the Greek debt problem until after a September 2013 German general election, but it may not be acceptable to the IMF.
IMF Managing Director Christine Lagarde clashed publicly with the chairman of euro zone finance ministers this week, saying the global lender differed with the Europeans on how to make Greece’s debt sustainable. She insisted that the IMF, which put up almost a third of the money lent to Greece in two bailouts, wanted a “real fix, not a quick fix” to the issue, suggesting she will take a dim view of a shorter-term solution.
Under its standard procedures, the IMF cannot go on disbursuing loans unless an adjustment programme is fully funded up to the end. Eurozone ministers agreed on Monday to grant Greece an extra two years, until 2016 to meet its fiscal targets, which the international lenders said would cost an extra ¤32bn.