Saturday 16 December 2017

Bondholders must share Greek pain, says Sarkozy

French leader urges investors to help 'restructure' debt burden

Helene Fouquet and James G Neuger

French President Nicolas Sarkozy said bondholders need to share the burden of solving Greece's fiscal woes, following leaders in Germany and Luxembourg in raising the prospect of restructuring Greek debt.

Mr Sarkozy called for a "formula" involving investors, adding to talk that Europe might engineer an extension of Greece's debt-repayment schedule or press bondholders to buy new bonds as old ones mature.

"Restructuring is a poorly used word," Mr Sarkozy told reporters yesterday after a G8 summit in Deauville, France. "If it means that we can think of ways for the private sector, private operators, to take on a share of the burden, it's not restructuring at all; then there are formulas, there is no problem, and we should then converge in that direction."

Saddled with Europe's heaviest debt load, Greece is seeking additional loans after last year's €110bn European-led package failed to dig it out of its fiscal hole.

The European Central Bank has led the charge against a restructuring, warning of a domino effect in European markets.

Greek 10-year bonds trade at less than 55c on the euro, a sign of investors' diminishing expectations of being repaid in full.

Greek leaders meeting in Athens last night failed to agree on Prime Minister George Papandreou's new austerity plan. Conservative leader Antonis Samaras rejected the measures, saying they would "flatten the Greek economy and destroy Greek society".

In his first comments on a potential Greek restructuring, Mr Sarkozy gave no timeline for talks on pushing bondholders to take losses in Greece. A planned permanent European rescue fund would mandate some form of "private sector involvement" as of mid-2013.

Debate over a possible default flared on May 16 when Luxembourg's prime minister Jean-Claude Juncker floated the idea of "reprofiling" Greece's debt -- granting it more time to pay off bondholders -- as one of the options.

German deputy finance minister Joerg Asmussen said the next day a failure of Greek austerity efforts would trigger a "discussion of measures that don't only burden the taxpayer but also involve the private sector on a voluntary basis."

European politicians have given sometimes conflicting definitions of possibilities such as 'restructuring, reprofiling, soft restructuring and default'. Mr Sarkozy said that if "restructuring" means a failure to pay off debt, "then this word won't be part of the French vocabulary".

Greece's extra financing needs may be known next week when European and IMF experts issue an update on its economic health. For now, economists including Nouriel Roubini estimate that Greece has a financing hole of about €60bn over the next two years.

Meanwhile, Ireland may be plunged into a "disastrous" sovereign debt crisis within three years as the cost of rescuing its banks mounts, Nouriel Roubini, who predicted the global financial crisis, said.

"Eventually the back of the government is going to crack" by "taking all the huge losses of the banking system," said Mr Roubini at a conference in Budapest yesterday.

The approach will "lead us with almost near certainty to a sovereign debt crisis in Ireland in a matter of two or three years".

"Eventually we're going to have a sovereign debt crisis that's going to be disastrous for Ireland and for the eurozone," Mr Roubini said. (Bloomberg)

Irish Independent

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