German government sources said today Greece will likely restructure its sovereign debt before the end of summer, putting a time frame to recent speculation that sent the euro to its lowest in two weeks.
"Decisive voices within the federal government expect that Greece will not make it through the summer without a restructuring," one high-ranking source told Reuters news agency.
"That does not mean that the federal government is striving for (a restructuring) but such a step will probably not be avoidable," he added. His comments sent the euro to its lowest level against the dollar since April 7th.
Athens today reiterated it had no plans to restructure its debt, a move its central bank chief said would be catastrophic, but markets continue to speculate that some form of restructuring is on the cards.
IMF, European Central Bank and European Commission will examine in June whether Greece has met the prerequisites to receive the next tranche of its €110 billion bailout package.
In an interview in Die Welt published last week, German finance minister Wolfgang Schaeuble said "additional steps" would need to be taken should the progress report in June conclude there are doubts about the fiscal sustainability.
Mr Schaeuble added then, however, that any restructuring would have to be voluntary if done before 2013.
Greek daily Eleftherotypia said Greece had told the International Monetary Fund and the European Union earlier this month at a meeting of European finance ministers that it wanted to restructure its debt.
US treasury secretary Timothy Geithner had also told Greek finance minister George Papaconstantinou a restructuring would be needed, the paper said.
"This is not true. The minister exhausted the issue yesterday," said the finance ministry official, who declined to be named, referring to repeated denials by Mr Papaconstantinou over the weekend.
Greece was the first euro zone country to need a bailout from EU members and the IMF, and its struggles to pay its debt have dented confidence in other euro zone nations' public finances, driving bond yields higher across the union's periphery.
Top EU and IMF officials have also dismissed media reports that the overborrowed country is seeking a restructuring.
But an increasingly public region-wide debate over whether Athens should restructure looked to have generated divisions between the euro zone's top two economies.
In Paris, French finance minister Christine Lagarde said today that resorting to a sovereign debt restructuring for Greece would be "catastrophic".
Asked if a restructuring would be necessary, she told LCI television: "No, absolutely not ... There is no question of speaking of a Greek debt restructuring."
In Berlin, Germany's finance ministry on Saturday denied it was drawing up contingency plans for a Greek restructuring after the Financial Times reported the ministry was studying options if Athens fails to meet its fiscal targets.
The German chancellery declined to comment on the FT report, but leading voices in the German government believe a Greek debt restructuring is highly probable, people involved in the discussions have told Reuters news agency.
Eleftherotypia said Mr Papaconstantinou had made the request for restructuring talks at the April Ecofin in Hungary, adding that all reports on the issue have been dismissed by officials because such moves are never pre-announced.
In markets the euro fell today to 10-day low against the dollar, with its fall gathering pace after the newspaper report though it pared losses after the finance ministry denial.
The cost of insuring Greek debt against default rose while Portuguese, Spanish and other lower-rated euro zone government debt came under pressure as media reports over Greek debt restructuring spooked investors.
Reuters