RPT-ECB's Orphanides urges end to Greek debt haircuts

LONDON Fri Jan 6, 2012 4:03am EST

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LONDON Jan 5 (Reuters) - (repeats story from Jan. 5 with no changes)

Euro zone leaders should abandon plans to include private investors in paring Greece's huge debts in order to restore trust in the currency bloc, a senior member of the ECB's governing council wrote in the Financial Times on Thursday.

Athanasios Orphanides said dropping plans to force losses on private sector holders of Greek debt would "help restore trust" in the euro zone and lower the borrowing costs of other governments in the currency union.

"Reversing the Greek private sector involvement decision would also raise the financing costs on the Greek government, but by restoring trust in the euro zone it would reduce the financing costs of other euro zone governments," Orphanides said in an opinion piece published on the FT's website.

Orphanides, who is also the central bank governor of Cyprus, said a 30-year low interest rate loan to Greece from other countries could accompany the reversal of private sector involvement, helping to keep its financing costs in line with present fiscal plans.

Dumping private sector involvement in reducing Greece's massive debts may be the only way to convince markets that investing in the euro zone was again safe, Orphanides said.

A deal struck at a Franco-German summit in Deauville, France, last October, which would have ensured the private sector was involved more generally in future euro zone bailouts, was reversed in December.

However, euro zone leaders have agreed that the Greek deal would be unique and would not be repeated, he said.

"The Greek private sector involvement reinforced the idea that holders of eurozone sovereigns should be prepared to incur losses even under circumstances that would not necessarily trigger comparable losses for sovereigns outside the eurozone," Orphanides wrote.

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