Is Euro Zone Considering Greek Debt Restructuring?

By Apr 6, 2011, 11:41 AM Author's Blog  

Some euro zone governments are concerned debt-laden Greece will not be able to refinance itself and may have to restructure its debt, one that would allow Greek to retire debt earlier than expected, the Financial Times Deutschland reported on Wednesday.

[From Reuters]: “An extention and top-up of the aid package would not be politically possible. Then, consequences would have to be drawn,” the paper quoted a source in the finance ministry of a large euro zone country as saying.

The newspaper also said that representatives of several euro zone governments told the paper that a restructuring could no longer be ruled out.

Meanwhile, Greece insists it has no plans to restructure its sovereign debt and is committed to fulfilling its commitments towards its creditors.

[From iMarketNews] “I can categorically rule out that there will be a restructuring or a haircut,” Greek parliamentary president Philippos Petsalnikos told the European affairs committee of the German parliament on Wednesday. “We are committed to sticking to our commitments towards our creditors,” he stressed.

“We will continue on our path to reduce the deficit,” the Greek politician vowed. “This way we will be able to get out of our bad situation, we are determined to win this bet.”

A restructuring of Greek debt would be negative not only for Greece but for the whole of the Eurozone, Petsalnikos warned. “That is why we’re not discussing a restructuring…we will repay our debt,” he reaffirmed.

Germany said it currently doesn’t see any way for Greece to restructure its debt. At a news briefing today in Berlin, Steffen Seibert, Chancellor Angela Merkel’s spokesman, said that European Union’s [EU] rescue program for Greece is helping the country repay its debt.

[From Bloomberg] : “Current European instruments don’t have provisions for debt restructuring”, he said. “The EU’s permanent rescue system for debt-strapped euro countries, due to start mid-2013, will allow for restructuring that includes the involvement of private creditors,” Seibert said.

Greek and European officials have long insisted that Greece can recover without restructuring its debt.

On Saturday, the IMF denied a report in German magazine Der Spiegel that it was privately pressing Athens to restructure its debt. IMF Managing Director Dominique Strauss-Kahn stressed a debt restructuring would not help Greece’s competitiveness.

Still, the fact that government officials are now being quoted by different reputable media outlets on the possibility and perhaps inevitability of a Greek restructuring, suggests a more open debate about it is likely to emerge over the course of  fiscal 2011.

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