The European Union's top economic official sought to rule out any write-off of Greece's debt to governments on Thursday after a European central banker said for the first time that a “haircut” on part of it was probable.
A row between eurozone governments and the International Monetary Fund over how to make Greece's giant debt mountain manageable is holding up the release of 31 billion euros ($39.5 billion) in emergency loans needed to keep Athens afloat.
IMF officials have argued privately that some write-down for eurozone governments is necessary to make Greece solvent but Germany, the biggest contributor to the bloc's bailout funds, has repeatedly rejected the idea of taking a loss on holdings of Greek debt, saying it would be illegal.
EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Helsinki: “The solution will be a combination of various elements, one is not enough.
“But it is essential that the principal not be touched. There is a strict unanimity on this within the eurozone.”
Rehn's comment contradicted European Central Bank Governing Council member Luc Coene, who was quoted by a Belgian daily as saying that a partial write-down of Greek debt was likely to happen eventually.
De Standaard said Coene made the comments in a debate with students at Ghent University on Wednesday. It did not publish a full quotation of his remark.
Greece's total debt is forecast to rise to 190 percent of gross domestic product next year, meaning it is highly unlikely to fall back to 120 percent of GDP by 2020, the level the IMF has said is the maximum sustainable in the long term.
Banks, insurers and other private investors holding about 206 billion euros of Greek bonds took a savage “haircut” on the nominal value of their securities earlier this year.
The eurozone's debt crisis began in Greece three years ago when a newly elected government disclosed that the country had knowingly understated its budget deficit.
Athens managed to sell nearly 1 billion euros in short-term bills on Thursday to complete raising the 5 billion euros it needs to pay off maturing paper on Friday and avoid default.
But the government desperately needs the next tranche of its international bailout loans to recapitalize its banks and pay civil servants and suppliers.
A senior eurozone source told Reuters on Wednesday that finance ministers of the 17-nation currency area would only attempt to close Greece's financing gap to 2014 when they meet again in Brussels next Tuesday, instead of finding a solution up to 2020 as sought by the IMF.
“We will concentrate on 2013 and 2014. The sum is about 13.5 billion euros ($17.2 billion),” said the source involved in negotiations, speaking on condition of anonymity.
That might postpone a longer-term solution to the Greek debt problem until after a September 2013 German general election, but it may not be acceptable to the IMF.
IMF Managing Director Christine Lagarde clashed publicly with the chairman of eurozone finance ministers this week, saying the global lender differed with the Europeans on how to make Greece's debt sustainable.
She insisted on Wednesday that the IMF, which put up almost a third of the money lent to Greece in two bailouts, wanted a “real fix, not a quick fix” to the issue, suggesting she will take a dim view of a shorter-term solution.
Under its standard procedures, the IMF cannot go on disbursing loans unless an adjustment program is fully funded up to the end. eurozone ministers agreed on Monday to grant Greece an extra two years, until 2016 to meet its fiscal targets, which the international lenders said would cost an extra 32 billion euros.
The dispute has called into question whether the IMF will remain in the Greek program.
But Rehn said: “The IMF has committed to support Greece according to the program, which was agreed together with the eurozone. There is no reason to suspect that the IMF would not cooperate also in the next stage of Greece's financing program.
“We know that many member countries view IMF participation, also financing, as a prerequisite for eurozone supporting Greece with these loan programs,” the EU official said. [Reuters]