Papaconstantinou and Roumeliotis offer opposite views on pre-bailout haircut

In interviews with Sunday’s Kathimerini, Greece’s ex-Finance Minister Giorgos Papaconstantinou and its former representative at the International Monetary Fund, Panayiotis Roumeliotis, have give diametrically opposite views on whether the issue of restructuring Greek debt should have been raised before Athens signed up to the EU-IMF bailout mechanism in May 2010.

Papaconstantinou argues that there was no such option available as Greece’s eurozone partners and the European Central Bank would not agree to a haircut on Greek government bonds in late 2009 or early 2010, while Roumeliotis inists that the prospects had been discussed by the IMF, which was in favor of such a move.

?The eurozone and the ECB would never have accepted such an option,? said Papaconstantinou. ?The reason for this is not be found in the realms of conspiracy theory, which would have the Europeans wanting to protect their banks at the expense of Greece.

?It is that the eurozone did not have the tools to deal with such an event, while at the same time protecting the stability of our single currency. Also, there is no way it would agree to the restructuring of a country’s debt when it had a primary deficit of 24 billion euros [as Greece did in 2009.?

Papaconstantinou argues that Greece showed progress after the first few months of the EU-IMF program, reducing its deficit by 5 percent of GDP, overhauling its pension system, creating an independent statistics body and obtaining greater control over spending and revenues.

The ex-finance minister says that a meeting between Chancellor Angela Merkel and French President Nicolas Sarkozy in Deauville in October 2010, when they raised the issue of the private sector having to bear part of the cost of bailing out eurozone countries, proved a turning point for the discussion on restructuring as it investors became wary of buying bond issued by crisis-hit countries.

Roumeliotis, however, insists that the IMF and its then managing director, Dominique Strauss-Kahn, had been pushing for a haircut from the start.

?I have to stress that many members of the IMF’s executive board believed from the start that the Greek program could not be implemented without a restructuring from the start,? he said. Roumeliotis added that Lazard, the private bank advising the Greek government, also recommended to Athens that it seek a writedown of its public debt.

The ex-IMF official said the issue was raised by the IMF with the Europeans in March 2010, after the fund completed its review of the Greek economy.

?The Europeans, especially the ECB, did not want the eurozone’s monetary stability to be shaken by a restructuring of Greek debt. Also, foreign banks pressured their governments to avoid a restructuring because they had a big exposure to Greek bonds.? Foreign banks held about 75 billion euros of Greek debt in early 2010.

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