Haircut was ‘terrible mistake,’ ECB’s Orphanides says

It was a «terrible mistake» to ask private holders of Greek government debt to forgo half of their investment, European Central Bank Governing Council member Athanasios Orphanides said on Monday.

Under a now-defunct deal in July, private bondholders planned to swap existing bonds for new, longer-maturing paper worth 21 percent less to help Greece as it stumbled under debt currently equivalent to 162 percent of GDP.

It soon became apparent, however, that the ‘haircut’ was insufficient and last month the Institute of International Finance (IIF) agreed with Greece and EU leaders to take a 50 percent loss to put the country on a more sustainable path back to solvency.

“It was a terrible mistake,» Orphanides, who is also the governor of the central bank of Cyprus, told the Cyprian parliament on Monday.

“By forcing the impairment of any state bond we have triggered concern internationally of all state bonds in the euro zone and that’s one of the key reasons we have a problem,» he said.

“It is because of this tragic mistake in the euro zone that the yields of so many bonds are so high,» Orphanides added. [Reuters]

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