Merkel does not rule out Greek ‘haircut’ in coming years

German Chancellor Angela Merkel said she has not ruled out a so-called “haircut”, or write-down, on Greek debt in the next few years, in an interview with a Sunday newspaper, marking an apparent softening in position.

After being vehemently opposed to accepting a “haircut,” Merkel told Bild am Sonntag that it could be considered from 2014 if Greece’s financial situation improves, according to a pre-released article.

“If Greece one day again manages with its revenue without getting new debt, then we must look at and assess the situation. That is not the case before 2014/15 if everything goes according to plan,” she told the paper.

Opposition politicians have accused Merkel of playing down the need for a write-down of Greek debt holdings by public institutions such as other eurozone governments and the European Central Bank, because of federal elections expected to take place on September 22.

In the Bild interview, Merkel contested that she had refused a “haircut” due to the looming elections.

“The current aid program for Greece runs until 2014, for the achievement of certain budgetary goals we have given the Greeks two years more time until 2016,” she said.

Many in Germany consider a writedown of Greek debt holdings inevitable.

But on Friday, Finance Minister Wolfgang Schaeuble said speculation on a “haircut” sent “the wrong incentive” to Greece because it reduced the pressure on the Athens government to enact structural economic reforms.

Some eurozone states have said they would “not exclude” the possibility of writing off some debt from 2015 onwards.

Merkel also said she favored considering tougher sanctions for indebted eurozone states.

“In the long term I am definitely of the opinion that we consider how we develop in our law procedures for states which do not comply with their commitments,” she said.

Merkel also told Bild that she understood the skepticism of many of her compatriots over Greece but that she saw a determination in Athens to reorganize the country and that rescuing Greece from economic collapse was in Germany’s best interests.

On Friday she secured the vote from German lawmakers to release 43.7 billion euros ($56.9 billion) in aid to debt-wracked Greece agreed after tortuous talks between eurozone finance ministers. [AFP]

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