* Greek PM blames German position for interest rate jump
* Warns tough stance could bankrupt some euro zone countries
(adds quotes, details, background)
By Nicholas Vincor
PARIS, Nov 15 (Reuters) - Germany’s insistence that banks and bond markets must in future share the pain of any euro zone sovereign debt default could force some economies toward bankruptcy, Greek Prime Minister George Papandreou said on Monday.
“Some have suggested, such as the German government, that bond markets, banks that finance nations with high debt should be prepared to take the cost of a possible default or haircut in the future,” Papandreou said during a visit to Paris.
The Socialist prime minister said Germany’s position had “created a spiral of higher interest rates for countries that seemed to be in a difficult position, such as Ireland or Portugal.”
”This could create a self-fulfilling prophecy ... It’s like saying to someone in difficulty, ‘I will put an even higher burden on your back.’
“This could break backs. This could force economies towards bankruptcy.”
Borrowing costs for many peripheral euro zone countries have jumped since a European Union summit last month agreed on a crisis resolution mechanism for countries unable to service their debts, designed to eventually shift some of the burden of for future debt issuance onto the private sector.
Ireland’s borrowing costs surged last week -- dragging up bond yields of other weak countries like Portugal and Spain -- fuelling talk that it would have to seek a European Union bailout and turning up the heat on its battered banks.
Ireland’s government has said it is fully funded until the middle of 2011 and does not want external assistance, although EU sources have said talks on a possible bailout are underway. [ID:nLDE6AC05R][ID:nLDE6AD09T]
Papandreou, who was in Paris to attend a meeting of European Socialists, leads a country whose debt is forecast to swell to 144 percent of GDP this year, from 126.8 percent of GDP in 2009.
His administration pledged on Monday, however, to stick to a promise to cut its budget deficit to below the euro zone’s 3 percent of GDP ceiling by 2014, despite statistical revisions that pushed last year’s figure to a staggering 15.4 percent.
Papandreou was due to have lunch with French President Nicolas Sarkozy later on Monday, after which he was expected to make a short statement, and to hold talks with Prime Minister Francois Fillon. (Writing by Daniel Flynn; Editing by John Stonestreet/Ruth Pitchford)