BRUSSELS – European Central Bank Chairman Jean-Claude Trichet reduced Greece?s hopes for a debt cut on Monday when he spoke in the European Parliament against a reduction to the Greek and the Irish debt, urging Athens and Dublin to press ahead with their streamlining programs instead.
?The message is very simple: apply the program,? Trichet said at European Parliament in Brussels. ?That program does not comprehend? the notion of haircuts, or debt reductions, as these would reward short-term investors at the expense of the long-term ones. ?They are losing money when you practice this haircut,? Trichet said. ?Those investors that are short are making money. So this is also something that one must have in mind when reflecting on this very, very important issue.?
Axel Weber, head of the Bundesbank – Germany?s central bank – seconded Trichet?s views, stating that national governments in the eurozone must streamline their economies and apply the structural changes that will render them competitive.
On the other hand, Pimco, the world?s biggest investment firm, stressed that Greek debt can only become solvent if Europe cuts it by 50 percent of the gross domestic product (GDP).
Also on Monday, Bruegel, the Brussels-based European think tank suggested in a report that it is impossible for the Greek debt to become viable even if the memorandum signed by the government and its creditors is successfully implemented, and even if there are some measures of ?mild restructuring? such as cutting the interest rate, buying back Greek bonds and extending the repayment period.
The report?s conclusion is that the Greek debt will be solvent only if there is a 30 percent haircut to its private holders. It is preferable to restructure the debt soon through exchanging bonds, which will be conducted by the European Financial Stability Facility after a decision to this direction by the European Council in spring.