GERMANY appeared to concede last night that a restructuring of Greek debt is now unavoidable.
“We are standing before the real risk of the first full-blown bankruptcy inside the eurozone,” wrote finance minister Wolfgang Schäuble in a leaked letter, addressed to the European Central Bank president, Jean-Claude Trichet.
With the letter, Mr Schäuble drops Berlin’s previous opposition to restructuring, which it had described as too risky, in favour of a “substantial and quantifiable” private sector contribution.
Mr Schäuble suggests private creditors should be made wait seven extra years for repayment of their Greek loans. The leak comes ahead of crucial meetings between Mr Schäuble and German MPs today, in which they are to demand a restructuring of Greek debt with private sector involvement.
Meanwhile, EU authorities have said Ireland’s plan to return to debt markets next year could be hindered by the increasingly volatile political situation in Greece.
As Greek prime minister George Papandreou struggles to win the support of his socialist administration for a drastic new round of budget cuts, European Commission chief José Manuel Barroso said it was accepted from the outset of the financial crisis that all countries were interdependent.
Asked specifically about Ireland’s plan to return to the markets in 2012, he acknowledged a link with the situation in Greece. “We have seen in the past the fact that sometimes the markets react, not only to a situation in one country, but they make some kind of generalisation and so in fact some risks exist,” he told reporters.
The Irish EU-IMF bailout is predicated on the Government regaining the confidence of market investors next year, something Ministers insist it will be able to do.
At a press conference in Strasbourg, Mr Barroso said the potential for contagion was an additional reason to work with Greece to ensure it went ahead with crucial reforms.
EU economics commissioner Olli Rehn also referred to the “systemic” element of uncertainty in Greece. “This is a crisis which has both country-specific and systemic features and therefore logically it is essential that we try to overcome the crisis by taking actions at both the country level and the European level,” he said.
Minister for Finance Michael Noonan insisted, however, that the Government faced “no urgency” in returning to international debt markets because the State was funded into the second half of 2013.
Speaking in the Dáil, he said it was still the Government’s intention to return to bond markets in the second half of 2012 if the yield on Irish debt fell below the interest rate on the aid package for Ireland.
Mr Papandreou faced open dissent within his own administration yesterday, potentially compromising his capacity to secure parliamentary support for new austerity measures.
