By Sarah Sloat and Alkman Granitsas
FRANKFURT–German and Greek officials moved over the weekend to damp speculation of a possible debt write-down for Greece, days after remarks from Germany’s finance minister rekindled concerns about Greece’s financial needs.
The prospect of further aid for Greece has become a hot-button issue in Germany, the biggest euro-zone contributor to Greece’s bailout, as Germany heads toward national elections late next month.
While it is looking increasingly likely that Athens will need a third aid package, on top of the 246 billion euros ($328 billion) already pledged so far, Berlin has been adamant that any further handouts wouldn’t be accompanied by a debt write-off.
Speaking on the sidelines of an event Sunday, German Finance Minister Wolfgang Schaeuble warned that even public debate on the matter was counterproductive.
Such debate “would lead to a renewed crisis of trust in the euro, which, thank God, we have overcome,” Mr. Schaeuble said. But he added that a new aid package for Greece, when euro-zone financing for the country runs out in mid-2014, was “extremely likely.”
Talk of a possible second debt write-down for Greece, sometimes called a haircut, heated up last week after Mr. Schaeuble said further aid for the country would be necessary when the current financial-assistance package begins winding down.
Greece received an initial bailout from its euro-zone partners and the International Monetary Fund in 2010. But as Greece’s economy sank deeper into recession and reform setbacks delayed the prospects of Athens returning to the private capital markets, another EUR173 billion in aid was approved in 2012. The euro-zone portion of those loans runs out in 2014, while the IMF has committed to finance Greece through early 2016.
But the IMF, which considers Greece’s debt unsustainable despite a EUR200 billion debt restructuring early last year, has insisted more be done to cut the debt burden before it will unlock further aid, something that sets the Fund on a collision course with Berlin over the Greek program.
Any decision, say European officials, won’t be taken until spring of next year, after Greece has produced its first primary budget surplus–the surplus before taking into account interest payments–that it has pledged to achieve this year.
Speaking in an interview with Greek and German newspapers, Greek Finance Minister Yannis Stournaras ruled out the need for another write-down of Greece’s debt, the lion’s share of which is held by the country’s official creditors.
“There are other ways in which we can reduce our debt burden,” Mr. Stournaras told the Handelsblatt newspaper. Among the possibilities are lowering interest rates and extending maturities on the existing loans. Another possibility would be to transfer some EUR50 billion in debt the Greek government has borrowed to recapitalize the country’s banking sector to Europe’s permanent bailout fund, the European Stability Mechanism–an idea that has been raised in the past but has received no support from Germany.
In separate remarks to Greece’s Proto Thema newspaper, Mr. Stournaras said “there is no likelihood” that any debt relief for Athens could come from a debt write-down. But he concedes a third bailout package, given Greece’s current inability to return to the markets, is a possibility.
Such a package, however, would be much smaller–on the order of about EUR10 billion–and wouldn’t be accompanied by any further austerity measures like those that have been demanded by creditors over the past three-and-a-half years.
German Chancellor Angela Merkel on Sunday also repeated her opposition to a debt write-down for Greece, telling a German magazine that such a move would only strengthen investor uncertainty.
“I emphatically warn against a haircut,” Ms. Merkel told Focus magazine. “It could trigger a domino effect of uncertainty, ending with private investors whose willingness to invest is at zero.”
In the interview, Ms. Merkel said a third aid program will be addressed when the time is right.
“As planned, in 2014 we will again look at the issue of how Greece’s debt level and structural reforms have developed,” she said. Until then, the country still has to work to implement reforms.
Those reforms will be key to fixing Greece’s finances, adds Deutsche Bundesbank President Jens Weidmann, who warned in an interview that neither a debt write-down, nor fresh aid for Greece, could be a substitute for necessary overhauls.
“A debt write-down, which would only leave us facing the same situation in five years time, would be counterproductive and send the wrong signal to countries receiving aid,” Mr. Weidmann, who is also a member of the European Central Bank’s executive board, told the Handelsblatt. “New aid alone will not create competitive companies or sustainable finances.”
Πηγή: Wall Street Journal