Germany: No to new Greek debt haircut

Source: Miamiherald

Germany’s finance minister has dismissed the idea of governments and other public creditors taking a hit on their Greek debt holdings, arguing that it wouldn’t be legally feasible.

However, Wolfgang Schaeuble said in an interview with Deutschlandfunk radio broadcast Sunday that a debt buyback program – under which Greece would get loans that would allow it to pay off debts – might be possible. That, he said, “is not a trick; it is a consideration that can seriously be engaged in.”

Greece is pushing for a two-year extension of the 2014 deadline to meet the terms of its bailout program, a move expected to incur substantial extra costs.

Private creditors agreed earlier this year to take a so-called haircut, or restructuring, on their Greek debt holdings – accepting a 53.5 percent loss on the face value of bonds.

Public-sector creditors were spared; however, German weekly Der Spiegel, without citing sources, reported Sunday that Greece’s international debt inspectors are now proposing a new restructuring that would include them.

Schaeuble said guarantees were given at the time of the private-sector restructuring that “that will be all – so it’s a bit unrealistic now to talk about further haircuts.” He also argued that a new haircut would raise questions over whether other governments in the 17-nation eurozone could continue helping Greece.

“You don’t give a debtor who doesn’t service your debt claims new money,” he said. “We would be prevented by law from doing any more.”

The European Central Bank already has said it can’t help Greece by rolling over government bonds it holds or accepting lower interest rates, noting that it isn’t allowed to finance governments directly.

Germany, Europe’s biggest economy and a lead lender in eurozone bailouts, has made clear that it wants Greece to stay solvent and stay in the 17-nation euro. However, it has kept pressure on Athens to implement reforms and get its finances in order while debt inspectors consider whether Greece has made enough progress to secure the next (EURO)31.5 billion ($40.7 billion) tranche of rescue loans.

On Wednesday, Greek Finance Minister Yannis Stournaras told the Greek Parliament his country had won an extension of the deadline to meet the terms of the bailout program – an assertion Schaeuble promptly shot down as “speculation.”

In Sunday’s interview, Schaeuble said he had called his Greek colleague and Stournaras told him “he did not say the negotiations had been concluded. He was misunderstood, or perhaps he expressed himself ambiguously.”

Schaeuble stressed the need to bolster the credibility of Greece’s rescue program, mentioning as one possibility automatic spending cuts if targets are missed.

On another thorny issue for the eurozone, the creation of a single supervisor for banks, Schaeuble emphasized Germany’s position that it must not be rushed. He noted that European leaders this month committed to try and get a plan for it in place by Jan. 1, “but they did say ‘if possible.'”

The supervisor needs to be up and running before Europe can work on giving its bailout fund the power to rescue banks directly – something that many governments would like to see soon.

However, the president of the ECB, which is slated to host the new supervisor, joined Germany in saying quality should trump speed.

“What is more important is that the (supervisor) works well, not when it starts,” Mario Draghi told Germany’s Der Spiegel. “Otherwise, the reputation and independence of the ECB are at risk.”

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