Eurozone finance ministers are considering a possible “haircut” for Greece in 2015, imposing losses on its international lenders, a German newspaper reported on Nov. 25, in a bid to reduce the debt mountain of the recession-wracked country.
Other Eurozone countries and institutions such as the European Central Bank (ECB) could be ready to discuss writing down a part of their Greek debt holdings to put Greece’s debt on a more sustainable footing, said the Welt am Sonntag.
The issue was discussed at a secret meeting of ministers and officials in Paris on Nov. 19, said the paper, without citing sources. That came as Eurozone finance ministers were set to meet in Brussels to discuss the Greek dilemma but they adjourned without agreeing to release a long-delayed $38.8 billion loan installment for the Greek economy, which is on life support.
Such a haircut might be used as an added incentive for Greece to carry out the reforms required in its second aid package, which runs out in 2014, according to the newspaper, as the Greek government has continually failed to meet economic targets. Germany has been firmly opposed to taking a loss on its holdings of Greek debt, unwilling to ask German taxpayers to foot the bill for keeping Athens in the Eurozone.
The ECB has also ruled out such a move, saying it is tantamount to financing Greece directly, strictly forbidden by its founding treaties, but another newspaper, Der Spiegel, reported that the ECB, as well as the International Monetary Fund, now considered a haircut unavoidable. The two organizations, along with the European Union, make up the Troika of Greece’s lenders which put up $152 billion in a first series of rescue loans and has a second bailout of $172 billion on hold.
By writing off half of their Greek debt holdings, Eurozone governments and institutions could drive down Greece’s debt to 70 percent of output in 2020, compared to 144 percent, wrote Spiegel. A previous Greek administration imposed losses of 74 percent on investors to write down the debt by $134 billion, but that didn’t slow the economy’s slide, even with 2 1/2 years of pay cuts, tax hikes and slashed pensions.
Eurozone ministers are set to meet again in Brussels on Nov. 26 for their third attempt at deciding on the first loan installment in the second bailout. Greek Prime Minister Antonis Samaras will be there. He was unhappy that the Eurozone didn’t unlock the monies after he pushed through Parliament a wildly-unpopular $17.45 billion spending cut and tax hike plan that implements more austerity in the face of growing social unrest.
Both Welt am Sonntag and Spiegel wrote that the haircut issue would not be decided at the talks. According to Spiegel, Berlin is still desperately trying to avoid taking a haircut on its holdings and instead is pushing for a reduction on the interest Greece pays on aid from its existing bailout programs.
German Chancellor Angela Merkel has supported continuing aid for Greece despite widespread opposition from Germans, although she hasn’t relented on demands for more austerity measures.
(Source: AFP)
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