German EU liberal: Greek restructuring must happen

BRUSSELS (Reuters) - Greece should restructure its debts within a year, a prominent member of the European Parliament from Germany’s junior governing partner told Reuters, saying his party would not oppose such a move.

Wolf Klinz is among the first to clearly outline the position of Germany’s liberal Free Democrats (FDP) on the controversial issue of restructuring. Their coalition partners in Berlin, the center-right Christian Democrats, have played down any debt restructuring and Greece opposes it.

“Greece will not make it without restructuring,” said FDP member Klinz, who chairs the European Parliament’s committee examining the response to the financial crisis.

“It must be done quickly -- over the next 12 months,” he told Reuters in an interview late on Tuesday.

“With a restructuring, it is important to move fast and take the initiative, rather than letting the markets get in control.”

The FDP in Berlin was not opposed to such a move, he said.

As Europe’s strongest economy, Germany has a major influence in deciding how to tackle the financial crisis. It will also pay out the most if highly indebted governments need bailouts.

A restructuring of Greek debt, a move viewed by some as risky as it might knock confidence in the euro zone, would see bondholders suffer losses in order to make Athens’ debt pile -- approaching 150 percent of gross domestic product -- more manageable.

It could also put the FDP at odds with Chancellor Angela Merkel, who has said such a move is not being considered now.

On Wednesday, finance minister Wolfgang Schaeuble told parliament he had discussed a possible restructuring of debt with the Greek government last year but that they were opposed to this. Athens was given a longer to repay EU loans instead.

“The most likely step would be to change the interest rate on bonds, change their maturity and give a small haircut to bond-holders,” said Klinz.

“I believe we will only see small haircuts for bond-holders -- perhaps 20 percent, one that would not require big writedowns at banks and insurers.”


As their popularity among voters slides, Germany’s liberals have become more vocal in their opposition to extending a 440 billion euro stability fund that is designed to help bail out highly indebted euro zone countries.

The FDP, which fought national elections with a promise of tax cuts that never materialized, is opposed to a bigger fund because of the likely burden for German taxpayers.

Earlier this week, embattled party leader Guido Westerwelle said he remained unconvinced about having a larger fund after a visit from Olli Rehn, the EU’s top economic official, who argued for an increase in the facility.

A debt restructuring, where the costs would fall on investors such as banks, insurers and pension funds, could prove easier to sell to voters.

Germany will find it hard to take a final position, its task complicated by divisions within the Berlin coalition government but also among Germany’s liberals.

On Wednesday, the liberals’ German parliamentary chief said there had been differences between FDP lawmakers in Berlin and Brussels on the euro zone crisis.

German banks have the second-highest exposure to Greek debt -- almost 37 billion euros -- and the highest in the euro zone to Ireland of more than 138 billion euros, but many banks have shifted the loans onto their bank book, where writedowns would not be immediate.

Many investors believe Greece’s debt, which is set to peak at 157 percent of GDP in 2013, is too high for the country to repay. Markets see the risk of default at almost one in three.

Additional reporting by Thorsten Severin in Berlin; Editing by John Stonestreet, Ron Askew