Leading German politicians are rejecting calls for a restructuring of Greek debt that would lead to a direct loss for German taxpayers, but they are keeping the door open to other manners of reducing Greece’s unsustainable debt load, including a debt-buyback program.
Greece’s private-sector lenders, who agreed to take losses on their investments in a massive restructuring of Greek debt, have refused to accept another so-called haircut on their holdings. Instead, the International Monetary Fund has suggested that European governments write off a portion of their loans to Greece.
German politicians appear to be warming to the idea of granting Greece more time to revamp its economy and reduce its debt and budget deficit. But Germany is refusing to consider taking a loss on official loans to Greece, fearing such a plan could spark a revolt against aid for Greece by lawmakers in Chancellor Angela Merkel’s ruling center-right coalition.
A public sector write-off on Greek debt is “out of the question,” German government spokesman Steffen Seibert said in a government news conference Monday. Such a restructuring would preclude further German loans to Greece, he added, since German law stipulates that loans can only be given to a nation when default is considered unlikely. “We would be tying our hands with such a measure and it would certainly not be in Greece’s interests,” Mr. Seibert said.
In addition to loans from the European Financial Stability Facility, the euro zone’s temporary bailout fund, Germany and other euro members gave Greece bilateral loans of €53 billion ($68.59 billion) in 2010-2011. Some in Europe argue it would be easiest to forgive some or all of those bilateral loans, while reducing only the interest rates on EFSF loans.
Mr. Seibert’s statement followed similar comments from leading German politicians over the weekend and on Monday rejecting suggestions that official lenders take a loss on their Greek debt holdings.
German Finance Minister Wolfgang Schäuble told Deutschlandfunk radio on Sunday that the discussion about public sector losses on Greek debt “has little to do with the reality in the member states of the euro zone.”
Greece faces a wider financing deficit than previously expected and is trying to bridge the gap through an extension of the program beyond 2014 and a reduction in interest payments. Germany appears to be growing more receptive to a proposal by the ECB that calls for granting Athens new loans to buy back some of its debt, allowing Athens to retire debt and thereby reduce its liabilities.
“That is a consideration that one can make seriously,” Mr. Schäuble said.
Speculation about which measures Germany will support to plug a growing financing gap for Greece has swelled since representatives of the troika of the IMF, the ECB and the European Commission last week reported to top European finance-ministry officials that Greece will need an additional €30 billion to cover a two-year extension to meet fiscal targets as its economy sinks deeper into recession.
Even with the extra €30 billion in aid, Greece’s ratio of debt to gross domestic product would still reach around 140% by 2020, European officials say. A restructuring of Greek debt that would result in a loss for Greece’s public creditors was one of several suggestions the officials gave as a way to make Greece’s debts more sustainable.
Taking a loss on loans to Athens would be deeply unpopular in Germany, where polls show rising public skepticism about efforts to keep Greece within the euro zone. Ahead of national parliamentary elections next fall, German politicians are reluctant to tell German voters that money provided to the euro-zone rescue fund, the European Stability Mechanism, and its predecessor, the EFSF, has been squandered on a debt writedown for Greece.
“A second debt restructuring in which official lenders or the European Central Bank would offer debt relief, would really cost us money,” Norbert Barthle, a leading conservative lawmaker on parliament’s influential budget committee, told the daily Passauer Neue Presse in an interview published Monday. “The credits for Greece that were given to the EFSF bailout fund would be affected. We want to do our utmost to avoid that.”