BERLIN Dec 3 German Chancellor Angela Merkel
said on Monday it was important not to promise a further
writedown on Greece's debt at the moment as this would reduce
the country's incentive to reform, a day after indicating a
haircut was possible in the future.
Last Tuesday Euro zone finance ministers and the IMF
approved a package of measures including interest rate
reductions and an extension of repayment periods aimed at
cutting Greece's public debt to 124 percent of national output
Germany insists a writedown of Greek debt held by euro zone
governments would be illegal, though Finance Minister Wolfgang
Schaeuble has also recently signalled that some kind of debt
'haircut' for official lenders might be needed eventually.
"I think it is very important that we don't dangle the
possibility of a haircut on debt right now, as all efforts would
then dwindle straight away," Merkel told public broadcaster ARD.
"It is important today that Greece continues on its reform
path, even if that is very, very arduous."
The prospect of the German government taking a 'haircut' on
the Greek debt it holds is politically risky for Merkel ahead of
next year's federal elections when she will seek a third term.
Germans would see such a writedown as a move towards a
'transfer union' whereby richer northern European nations
bankroll southern ones they consider undisciplined.
Merkel said in an interview published on Sunday that
Greece's creditors may look at writing down more of its debt but
not before the current bailout programme has run its course.
"The time must come when Greece can once again really live
on its own income, and then, we've said we must check the
situation again," Merkel said in Monday's interview.
Merkel said the euro zone crisis had built up over many
years and could not be easily solved by a haircut or euro bonds.
"It will be a very long process, there are mistakes that lie
in the very introduction of the euro," the chancellor said. "As
a result we will need a long path to redress these initial