December 21, 2012 / 12:20 PM / 5 years ago

UPDATE 1-Germany declines to rule out Cyprus debt haircut

* German spokesman says all options on table with Cyprus

* Eurogroup chief Juncker rules out “haircut”

* Asmussen says forced bond losses not up for discussion now

BERLIN, Dec 21 (Reuters) - Germany declined on Friday to rule out a writedown of Cypriot sovereign debt, saying instead that all options should be looked at to bring the Mediterranean island’s debt down to sustainable levels.

Cyprus has dismissed as unfounded suggestions that the International Monetary Fund is seeking a debt writedown before it agrees to participate in a multi-billion euro bailout and European policymakers have rushed to do the same.

But German Chancellor Angela Merkel’s spokesman, when asked repeatedly about the possibility, declined to rule it out, saying all steps were on the table.

“The financing situation will be looked at in January. And all options will need to be examined,” Steffen Seibert told a regular government news conference.

Private holders of Greek debt have had to accept losses, but Germany and its European partners have signalled until now that this was a one-off that would not be repeated in other members of the euro zone.

When pressed on whether this position had changed, Seibert answered: “It is clear that the debt sustainability of a country that is receiving help is a decisive factor. And we need to talk about how to reach a sustainable debt level. There are several possibilities.”

Euro zone finance ministers will meet again on January 21 to discuss a bailout for Cyprus. By then they expect clarity on how much money Cyprus needs to rescue its banks.

Cyprus, one of the smallest states in the euro zone, reached a preliminary deal with international lenders last month to get up to 17.5 billion euros in aid, equivalent to the entire annual output of its economy.

The bulk of that, up to 10 billion euros, would go towards recapitalising banks hit by a restructuring of Greek sovereign debt earlier this year, according to the draft of the deal.

Eurogroup chief Jean-Claude Juncker on Friday dismissed the possibility of a writedown on Cypriot sovereign debt, saying it would put credibility of the euro zone at risk.

“We didn’t say all Greek-speaking countries, we said Greece. It is part of the credibility to stick to the signals you have sent,” Juncker told German radio Deutschlandfunk, referring to previous statements ruling out writedowns outside of Greece.

“I expect that a haircut will not be part of the instruments that will be used with priority (in Cyprus). I want to exclude that possibility from my side,” Juncker added.

However, European Central Bank board member Joerg Asmussen did not go as far, saying only that a haircut was not up for discussion at the moment.

“There is no question of a haircut for Cyprus now ... because we have (only) a preliminary financing need for the banks in Cyprus. We will get the final numbers in mid-January,” Asmussen told German TV station ARD.

“It is already foreseeable that after the final data, the financing need will be so high that the debt level will be very high and unsustainable,” he said, adding that measures to achieve a budget surplus and privatisations would then be looked at.

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