Greece may need to restructure debt


Europe's top financial officials broke a taboo today and acknowledged for the first time that Greece may have to restructure its debts, a move which could stoke Europe's sovereign debt crisis.

Speaking on the sidelines of an EU finance ministers' meeting, Jean-Claude Juncker, chairman of the 17-country Eurogroup, said there was a need to move towards what he called a "soft restructuring" of Greek debt.

Other officials suggested the term implies debtholders agreeing on a voluntary basis to accept later repayment.

Mr Juncker said Greece first needed to raise €50 billion from privatisations and pay down its debts, which now total almost 150 per cent of GDP. But in return some form of restructuring of Athens' debt might be considered, he said.

“If Greece makes all these efforts, then we must see if it is possible to make a soft restructuring of Greek debt. I am strictly opposed to a major restructuring," Mr Juncker said.

Olli Rehn, the European commissioner for economic and monetary affairs, seconded Mr Juncker's position, saying there was a need to maintain private investors' exposure to Greece.

"In this context, a voluntary extension of loan maturities, a so-called re-profiling or rescheduling on a voluntary basis, could also be examined," he said.

Greek officials quickly confirmed the possibility, with both the labour minister and the deputy foreign minister saying Athens was prepared to discuss a "soft restructuring".

"One possible solution can be to extend maturities on a voluntary basis with the participation of all players," Labour minister Louka Katseli told Reuters.

Speaking in Brussels today, Minister for Finance Michael Noonan warned against countries making tough demands in return for extra concessions for countries such as Greece, Ireland and Portugal.

"A failure in any of the prgrammes is going to be be very bad for the euro zone," he said. "Europe needs a win. We're having a euro crisis every three weeks at the moment."

The euro fell against the dollar and the price of German Bund futures rose slightly after the comments.

For weeks, senior European officials have dismissed the idea of a debt restructuring, concerned about setting a precedent and the knock-on impact on major banks and the European Central Bank, all of which are large holders of Greek debt.

But financial markets have been steadily discounting the likelihood and analysts are largely agreed that in Greece's case it is unavoidable given the size of the debts and the government's growing inability to finance them.

Greece and Spain both sold short-term debt successfully today, and the price of short-dated bonds among euro zone periphery countries fell, but the cost of insuring Greek debt against default rose.

Germany's deputy finance minister, Joerg Asmussen, said signing up private holders of Greek debt for "reprofiling" should only be an option if further reforms from Athens fail to solve the problem. But how to persuade creditors to voluntarily alter the terms remains a big open question.