Monday 5 December 2016

Greek debt default 'not a disaster' if €110bn rescue fails

Bond yields increase again after comments by German minister

Tony Czuczka

Published 16/04/2011 | 05:00

A GREEK debt restructuring "would not be a disaster" and Germany would back a voluntary effort to ease the struggling euro member's payment terms, Deputy Foreign Minister Werner Hoyer said.

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The euro and Greek bonds fell after his comments. The remarks by Mr Hoyer were the most explicit by a European official showing a €110bn bailout for Greece may fail to prevent the first default by a euro country. His message contrasts with Greek Prime Minister George Papandreou's pledge to avoid a restructuring.

Greece has "done a tremendous job in reforming the country," Mr Hoyer, who is minister for European affairs, said in an interview in Berlin.

"Whether all this is enough, whether the results will be there soon enough, is a different question. We are looking at the economic developments, the fiscal developments in Greece and we are worried."

Bonds of Europe's most indebted nations fell for a third day after a Moody's Investors Service downgrade of Ireland to the lowest investment grade and Mr Hoyer's comments. The yield on 10-year Greek debt jumped 55 basis points to 13.83 percent

"A haircut or a restructuring of the debt would not be a disaster," said Mr Hoyer, a member of the Free Democratic Party, junior partner in Chancellor Angela Merkel's government.

"If Greece's creditors agreed that talks with the Greek government would be helpful toward a restructuring of the debt, then of course this would be supported by us."

German Finance Minister Wolfgang Schaeuble yesterday sought to retreat from comments in an interview published yesterday in the German newspaper 'Die Welt' suggesting Greece may have to seek a debt restructuring.

"The conclusions from it are somewhat misguided," Mr Schaeuble told reporters in Washington, when asked whether he was suggesting Greece needed to restructure a debt load of about €300bn.

Gambit

"This is part of a gambit in negotiations with the others," he said. "The German message is: Don't count on us to add more money."

The questions over Greek finances came as Mr Papandreou's government promised to step up efforts to cut the budget deficit, outlining €26bn in new austerity measures and €50bn in asset sales.

European Union Economic and Monetary Affairs Commissioner Olli Rehn said a debt restructuring in the euro region could cause a "chain reaction through the banking sector," calling the environment still "fragile."

ECB vice-president Vitor Constancio said that he doesn't see a threat of a default in Greece or Ireland. "I don't think any restructuring is really justified. We have to stick with programmes that are now in place both for Greece and Ireland and very soon also for Portugal."

With two-year Greek yields rising to 18.5pc, investors are anticipating they're not going to be repaid in full and on time.

"The issue of Greece is not whether there will be debt restructuring, but when it will be done," Nouriel Roubini, the economist who predicted the global financial crisis, said at a conference in Kazakhstan.

Irish Independent

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