BERLIN, Germany — Germany is digging in its heels once again. This time it is refusing to countenance the ECB taking a haircut on Greek bonds as efforts continue to stave off default.
While talks in Athens drag on between the Greek government and private creditors over reducing its massive debt, German Economics Minister Philipp Roesler insists that the European Central Bank should not also take a hit.
“This is currently not an issue for us,” Roesler told The Wall Street Journal, when asked if the ECB should get involved in Greece’s debt restructuring.
“The current discussion is primarily about private sector involvement,” he insisted.
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Private creditors have been in talks for weeks with the Greek government, constantly just on the brink of a debt swap deal. However, the private investors now say they will only go so far on their own. They are offering to slash up to 75 percent off the debt they hold only if the public sector creditors also get involved.
Greece desperately needs a deal before it can access the next bailout from the so-called troika — the International Monetary Fund, European Central Bank and European Union — to pay a looming 14.5 billion euro ($19 billion) bond payment on March 20.
The original plan had envisaged private bondholders taking a 50 percent hit on their returns from Greek bonds. The hope was that the haircut combined with the bailouts would eventually reduce the Greek deficit to 120 percent of GDP. However, since the talks began, it has emerged that the Greek finances are in even worse shape and there would still be a 15 billion euro funding gap.
The negotiations are now reportedly being held up by a disagreement between Berlin and IMF on whether members of the troika should also take a hit on any Greek sovereign debt they hold.
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Germany insists that taxpayers have already done enough. “European states and their taxpayers already make a massive contribution to Greece’s restructuring through their support efforts,” Roesler said in the WSJ interview published Friday.
He was reiterating the line taken by Finance Minister Wolfgang Schaeuble this week. "Greece needs a debt restructuring of 50 percent on the bonds held by private investors,” Schaeuble told the N-TV news channel Thursday. “It does not need any supplementary contributions from the public sector.”
He added: “Of course we are ready to help Greece — it’s also in our interest, our responsibility, but we can’t (pay) into a bottomless pit.”
The ECB and national central banks are estimated to hold up to 55 billion euros in Greek debt and Greek Finance Minister Evangelos Venizelos added his voice to those urging the ECB to get involved in the debt restructuring.
"In parallel with negotiations with private creditors, there must be negotiations for the official sector involvement,” he told Greek lawmakers on Thursday. “This means that the ECB must be mobilized, and we must resolve issues pertaining to national central banks.”
The pressure is on Greece to conclude the talks with the private bondholders by Monday, when the euro zone’s finance ministers meet in Brussels to approve the second bailout of 130 billion euros. If that cannot be agreed, then Greece faces a possible default in March.
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