April 13, 2011 / 6:12 PM / 9 years ago

UPDATE 1-Germany acknowledges Greece may need to restructure deb

* Schaeuble: ‘something must be done’ if debt unsustainable

By Noah Barkin

BERLIN, April 13 (Reuters) - Germany acknowledged for the first time on Wednesday that Greece may need to restructure its debt but said such a step could only be pursued before 2013 if it were done on a voluntary basis.

In an interview with Die Welt newspaper, German Finance Minister Wolfgang Schaeuble said on Wednesday “additional steps” would have to be taken to deal with Greece’s huge debt burden if an analysis from the European Central Bank and European Commission in June showed it is unsustainable.

His comments were the first by a senior euro zone official acknowledging that some form of restructuring of Greek debt may be needed. The ECB and the European Commission have both ruled out such a step, fearful that asking investors to accept changes such as smaller or later repayments could intensify the bloc’s debt crisis, possibly sucking in other vulnerable economies.

When asked by the daily how Greece, or other countries like Portugal, would ever be able to eliminate their “mountains of debt”, Schaeuble said:

“In June we will get a progress report. I’m expecting a detailed analysis on the debt sustainability of Greece, that will be done in consultation with the Commission and the ECB. If this report concludes that there are doubts about the debt sustainability of Greece, something must be done about it.”

Asked what should be done, Schaeuble said: “Then further steps will have to be taken.”

Schaeuble made clear, however, that any restructuring would have to happen on a voluntary basis if done before 2013, when new rules go into effect that envision private creditors shouldering losses in the event debt relief is provided to stricken euro zone states.

“Until then a restructuring could only take place on a voluntary basis,” Schaeuble said.


Debate among euro zone officials on a restructuring has been almost taboo since Athens accepted a 110 billion euro ($157 billion) bailout from the European Union and International Monetary Fund nearly a year ago, and opposition to the idea remains high across the zone.

But rising doubts about Greece’s ability to meet its fiscal targets and return to the markets for funding next year have convinced some senior officials in euro zone governments that a debt restructuring is inevitable.

The Greek government has repeatedly ruled it out and the ECB also opposes it.

Chancellor Angela Merkel has stated that private creditors will not be forced to take any losses on euro zone debt before a new bailout mechanism for the bloc is up and running in 2013 — and even then, only debt issued after that date would be affected.

But privately, some senior government officials in the zone have acknowledged for the first time what private economists have been saying for months — that some form of restructuring may have to happen sooner, probably in 2012.

A slumping Greek economy — gross domestic product is expected to contract by 3 percent this year after a 4.5 percent drop in 2010 — and slow progress in tackling tax evasion have led to revenue shortfalls at a time when Athens should be reaping the low-hanging fruit from its reform drive.

On Friday, Greece will present new fiscal and privatisation plans in an attempt to convince investors it can meet the terms of a European Union/International Monetary Fund bailout and avoid restructuring its debt [ID:nLDE73C0O4]

Analysts said the announcement was unlikely to mute increasing concerns that Athens’ debt mountain is unsustainable and that Greece will eventually have to ask investors to accept reduced terms.

Finance Minister George Papaconstantinou reiterated on Wednesday that the government did not intend to restructure debt, saying such a move would shut the country out from the markets for a long time and hurt the economy.[ID:nLDE73C0O4]

Earlier on Wednesday, German weekly Die Zeit reported that EU experts have estimated that Greece must wipe away 40-50 percent of its debt load through a restructuring in order to return to a sustainable economic path [ID:nLDE73C26F].

The newspaper, citing EU sources, said no decision had been taken on whether to pursue a restructuring of Greek debt, but various options were under consideration, including “less radical” solutions like a voluntary extension of maturities.

Writing by Noah Barkin and Erik Kirschbaum; Editing by Ruth Pitchford

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