Merkel ally says new Greek debt restructuring possible in 2014 or 2015

Opposition to a new debt relief program for Greece is easing within German Chancellor Angela Merkel’s Christian Democratic Union, as a top party member opened the door for a new program in 2014.

Michael Fuchs, a deputy CDU leader in parliament, said he sees the possibility of offering Greece new debt aid terms in 2014 or 2015 on the proviso its economy grows. If it pulls out of recession, that would demonstrate it has held to its promise to make the economy more competitive, he said.

“If the economy sets on a growth path of 2 percent that shows the economy has become more competitive,” said Fuchs in a telephone interview from Berlin on July 8. “I see a restructuring of debt in 2014 at the earliest, or 2015, on condition reforms take effect.” Debt relief for Greece could be done either by easing interest on loans or a debt writedown by creditors, he said.

Greece is forecast to have a primary balanced budget this year, according to a May report by the so-called troika comprised of the European Central Bank, the European Commission and the International Monetary Fund.

Greece’s euro-area partners switched this week from paying quarterly aid to smaller monthly installments after the country fell short of fulfilling fiscal and administrative pledges. Greece’s solvency troubles go deeper than revealed in quarterly snapshots of fiscal health, Development and Competitiveness Minister Kostis Hatzidakis indicated in a July 2 interview in the Die Welt newspaper.

Asked if Greece is seeking a second cancellation of debt, Hatzidakis said he expects “solidarity” from European partners.

As Germany’s Sept. 22 election approaches, Merkel is leery of testing voters’ appetite for writing off taxpayer loans to Greece approved in its second bailout. In a July 3 interview in the Sueddeutsche Zeitung newspaper she said she assumes the outlook for Greece to sustain its debt payments “still applies.”

“Easing interest on rescue loans would be the only possibility and only when Greece redoubles its efforts,” said CDU budget spokesman Norbert Barthle in a telephone interview yesterday.

“A small miracle must occur in Greece’s efforts to adhere to its reform promises, otherwise it will be very difficult to consider” alleviating aid terms, said Barthle.

Greece has been granted two bailout packages that amounted to pledges of 240 billion euros ($308 billion) over the past three years. The country’s economic outlook remains “uncertain,” inspectors from the troika said July 8 after completing their latest review.

“The problem is that Greece is insolvent,” Fredrik Erixon, the director of the European Centre for International Political Economy in Brussels, said in a phone interview. “The writedown wasn’t enough and debt-to-GDP needs to come down below 75 percent for it to be truly sustainable.”

Greece pushed through the biggest sovereign restructuring in history last year after getting private investors to forgive more than 100 billion euros of debt.


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