January 19, 2011 / 11:29 AM / 8 years ago

UPDATE 1-Germany studies possible Greek restructuring -sources

* Impact of restructuring on German banks examined - source

* Analysis underway, no conclusions reached

* Greece, Germany deny any intention to restructure

* Second source says scenarios also looking at Ireland

(Adds details, Greek denial of newspaper story, quotes)

BRUSSELS, Jan 19 (Reuters) - Officials in Germany’s finance ministry are working on contingency plans to handle the fallout if Greece defaults or needs to restructure its debt, sources with direct knowledge of the matter said.

One source close to the finance ministry said German civil servants were analysing what a Greek restructuring would mean for German banks as well as the stability of the euro zone. No conclusions have yet been reached.

“They have started to consider the unthinkable,” said the source. “They are looking at a contingency plan preparing for Greek restructuring.

“It is not something they want but something they recognise,” he said. “They would be unprepared for the impact on their own bank balance sheets. They have started to see what the Greek constitution says.”

Germany’s Die Zeit weekly, citing unnamed government sources, said in a preview of Thursday’s edition that Berlin was considering a plan which would allow Greece to buy back its own debt using a euro zone crisis fund. [ID:nLDE70I0YD]

Greek and German government officials denied the report.

“There is no discussion on the issue of restructuring,” Deputy Finance Minister Philippos Sachinidis told Reuters.

A German finance ministry spokesman said in a statement: “Germany is not preparing a restructuring of Greek debt.”

The report in Die Zeit used the word “Umschuldung” which could refer to either a restructuring or a rescheduling.

Publically, Germany remains opposed to any restructuring or partial non-payment of Greek debt, but some officials in Berlin are increasingly concerned that it may be inevitable.

A second, German source linked to the country’s financial policymaking, said officials were weighing the possibility of a default on Greek debt.

“They are in the course of looking at scenarios — one is that they must restructure. And for Ireland too,” he said.

“It is a balancing act. It is economically necessary. It is not politically opportune to do it overtly. You cannot restructure Greek bonds and do nothing for Ireland. Officially, no one is speaking, but it is an ongoing issue.”

The European Union’s 27 countries are working on the structure of a permanent mechanism to cope with future debt problems, including measures for an orderly default.

They also want to strengthen the existing financial safety net for weak countries by the end of March. (Editing by Mike Peacock)

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