Germany has conceded that Greece would need some debt restructuring as part of any new loan programme to make its economy viable as the Greek cabinet raced to finalise reform proposals to avert an imminent economic meltdown.
The admission by German Finance Minister Wolfgang Schaeuble came hours before a midnight deadline for Athens to submit a reform plan meant to convince European partners to give it another loan to save it from a possible exit from the euro.
Greece has already had two bailouts worth €240bn from the eurozone and the International Monetary Fund, but its economy has shrunk by a quarter, unemployment is more than 25pc and one in two young people is out of work.
Schaeuble, who has made no secret of his scepticism about Greece’s fitness to remain in the currency area, told a conference in Frankfurt: “Debt sustainability is not feasible without a haircut and I think the IMF is correct in saying that.”
But he added: “There cannot be a haircut because it would infringe the system of the European Union.”
He offered no solution to the conundrum, which implied that Greece’s debt problem might not be resolved within the eurozone.
But he did say there was limited scope for “reprofiling” Greek debt by extending loan maturities, shaving interest rates and lengthening a moratorium on debt service payments.