Merkel Ally Says Greece May Need Debt Cut to Stay in Euro

Greece may need a second debt restructuring to stay in the euro, a leading political ally of Chancellor Angela Merkel said.

The comments by Norbert Barthle, the Christian Democratic Union’s parliamentary budget spokesman, are the first indication by a senior German official that additional help for Greece may be forthcoming to avert the market turmoil that would be triggered by its exit from the 17-nation currency region.

“We should try to keep Greece in the euro zone,” Barthle said by phone today. If action is needed to do so, “not just taxpayers but also private creditors would again be involved in helping Greece, but under strict conditionality,” as under the first restructuring, he said. “Greece must fulfil the terms of its bailout and terms of privatisation.”

Greece’s so-called troika of international creditors, the European Central Bank, the European Commission and the International Monetary Fund, are in Athens this week amid doubts the country will meet its bailout targets and reluctance among Germany and other euro-area states to put up more funds should Greece fail to do so.

“We really do have to wait for the troika report,” Barthle said, adding that debt restructuring was a “possible solution” and was not yet a topic of discussion among his coalition colleagues. Even so, “of course we have to think what action might be needed if the worst comes to the worst,” he said. “But it will cost us a lot of money.”

ECB Holdings

Greece underwent the biggest debt restructuring in history in March when private creditors forgave 100 billion euros ($121 billion). By April, of Greece’s residual 266 billion euros of debt, about 194 billion euros -- or 73 percent -- was held by the ECB, euro-area governments and the IMF, according to the Greek Debt Management Office in Athens.

Evangelos Venizelos, leader of Greece’s Pasok party and a former finance minister, advocates a writedown of Greek government bonds held by the ECB to further cut the country’s public debt.

Greek debt can be cut by 12 percentage points if the ECB takes a “haircut” and by 25 percentage points with the transfer of 50 billion euros of bank recapitalization funds to the euro rescue fund, the European Financial Stability Facility, Venizelos said July 7.

EU Scenarios

The European Union is studying scenarios to stop Greece from bankruptcy, German newspaper Die Zeit reported today, citing sources it didn’t name. With EU member states unwilling to commit to anther bailout, officials are considering a new debt restructuring under which state creditors, among them Germany, would accept losses, it said.

The German Finance Ministry declined to comment on the report. “Where there are delays, Greece will have to make up for them,” Finance Minister Wolfgang Schaeuble told Bild newspaper in an interview published yesterday. “Once the troika reports, the euro group will deliberate.”

Barthle’s comments contradict Germany’s vice chancellor and economy minister, Philipp Roesler, who told broadcaster ARD on July 22 that he is “very skeptical” Greece can be rescued and the prospect of its exit from the monetary union “has long ago lost its terror.”

‘No Reason’

Those remarks earned him international and domestic criticism, with German opposition parties calling for Merkel to sack him and Klaus-Peter Flosbach, a senior CDU lawmaker, telling Handelsblatt’s online edition that “there was absolutely no reason to start this debate now.”

Greek Prime Minister Antonis Samaras took a swipe at Roesler without referring to him by name, telling lawmakers in Athens yesterday that officials who question his country’s ability to stay in the euro are “irresponsible.”

“There are some foreign officials, who every so often come out and assume that Greece won’t make it,” Samaras said. “I consider them -- I say openly and publicly -- to be those who undermine the national effort. We are doing what we can to keep the country upright and they do whatever they can to ensure our failure.”

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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