German pressure to involve bondholders in helping debt-strapped Greece is pushing up the cost of the bailout, Eurogroup chairman Jean-Claude Juncker said in comments published on Saturday.
“Because we have to seek a contribution from private creditors due to German domestic politics, everything will be more expensive,» he told German newspaper Sueddeutsche Zeitung.
Successful negotiations over a new aid package for Greece are vital to the economic health of the euro zone, Juncker said.
“We are playing with fire,» he said, adding that in the worst case, ratings agencies could declare a default leading to dire consequences for the currency union.
“Contagion from (any) bankruptcy could reach Portugal and Ireland, and then because of the high debt, Italy and Belgium, even before Spain,» Juncker added.
On Friday the leaders of Germany and France, long at odds over how to involve private holders of Greek bonds in a new rescue package for Athens, said they agreed on a mild solution favoured by Paris and the European Central Bank.
Bond markets remain spooked by fears of a Greek default and most economists are overwhelmingly sceptical that Greece can ever repay its debt mountain, which has reached 340 billion euros or 150 percent of the country’s annual economic output.