Clashes over Greek debt
The European Union's top economic official sought to rule out any write-off of Greece's debt to governments today after a European Central Bank policymaker said for the first time that a "haircut" on part of it was probable.
A row between euro zone governments and the International Monetary Fund over how to make Greece's giant debt mountain manageable is holding up the release of €31 billion in emergency loans needed to keep Athens afloat.
IMF officials have argued privately that some writedown for euro zone governments is necessary to make Greece solvent but Germany, the biggest contributor to the region's bailout funds, has repeatedly rejected the idea of taking a loss on holdings of Greek debt, saying it would be illegal.
"The solution will be a combination of various elements, one is not enough,” EU economic and monetary affairs commissioner Olli Rehn told reporters in Helsinki. "But it is essential that the principal not be touched. There is a strict unanimity on this within the euro zone."
Mr Rehn's comment contradicted ECB Governing Council member Luc Coene, who was quoted by a Belgian daily as saying that a partial writedown of Greek debt was likely to happen eventually.
De Standaard said Mr Coene made the comments in a debate with students at Ghent University yesterday. He was also quoted as saying Spain should urgently seek a bailout.
Asked whether the Belgian central bank chief had been reflecting a growing view in the ECB that an official sector "haircut" on Greek debt was inevitable or speaking for himself, a senior ECB source said Mr Coene had expressed his personal view.
Greece's total debt is forecast to rise to 190 per cent of gross domestic product next year and seems highly unlikely to fall back to 120 per cent of GDP by 2020, the level the IMF has said is the maximum sustainable in the long term.
Banks, insurers and other private investors holding about €206 billion of Greek bonds took a savage "haircut" on the nominal value of their securities earlier this year.