Europe mulls Greece ‘haircut’ in 2015

Euro zone finance ministers are considering a possible “haircut” for Greece in 2015, a German newspaper reported on Sunday, in a bid to reduce the debt mountain of the recession-wracked country.

Other euro zone countries and institutions like the European Central Bank could be ready to discuss writing down a part of their Greek debt holdings to put Greece’s debt on a more sustainable footing, said the Welt am Sonntag.

The issue was discussed at a secret meeting of ministers and officials in Paris on Monday, said the paper, without citing sources.

Such a haircut might be used as an added incentive for Greece to carry out the reforms required in its second aid package, which runs out in 2014, according to the Welt am Sonntag.

Germany has been firmly opposed to taking a loss on its holdings of Greek debt, unwilling to ask German taxpayers to foot the bill for keeping Athens in the euro zone.

The ECB has also ruled out such a move, saying it is tantamount to financing Greece directly, strictly forbidden by its founding treaties.

But the Spiegel newsweekly reported on Sunday that the ECB, as well as the International Monetary Fund, now considered a haircut unavoidable.

By writing off half of their Greek debt holdings, euro zone governments and institutions could drive down Greece’s debt to 70 per cent of output in 2020, compared with 144 per cent, wrote Spiegel.

Euro zone ministers meet on Monday for their third effort to agree on unlocking a 31.2-billion-euro (US$40.5-billion) slice of aid for Greece as it teeters on the verge of bankruptcy.

Both Welt am Sonntag and Spiegel wrote that the haircut issue would not be decided at Monday’s talks.

According to Spiegel, Berlin is still desperately trying to avoid taking a haircut on its holdings and instead is pushing for a reduction on the interest Greece pays on aid from its existing bailout programmes.