German Finance Minister Wolfgang Schaeuble said European governments can’t accept losses on Greek debt holdings, clashing with the International Monetary Fund.
“At the International Monetary Fund, there are indeed considerations that if the total Greek debt was reduced by means of a haircut borne by public creditors, the gap would be easier to close” in terms of Greece’s debt sustainability, Schaeuble said in Tokyo today before a meeting of finance chiefs.
Almost all European member states have rules stipulating that guarantees can’t be extended without some assurance that the loan will be repaid, Schaeuble said. If an official sector involvement, dubbed OSI, was carried out, “the preconditions for further guarantees or payments would be destroyed,” he said.
IMF Managing Director Christine Lagarde has suggested that Greece may need another debt cut, saying on Sept. 24 that the country at the source of Europe’s financial crisis faces a financing gap that won’t be solved by budget measures alone. European Central Bank Executive Board member Joerg Asmussen said last month that Greece may need more aid.
International lenders have so far pledged funds totaling 240 billion euros ($309 billion) to Greece, which also had 100 billion euros of debt written off by private-sector investors this year in the biggest restructuring in history.
Troika in Athens
Inspectors from the troika, which comprises the European Commission, the IMF and the ECB, returned to Athens at the end of last month to continue to assess whether Greece is meeting the terms of its bailout and can receive the next installment.
In a March report on Greece, IMF economists said the country may need more aid from Europe or further debt restructuring if the current loan program went off track.
Rainer Bruederle, a former German economy minister who is now parliamentary caucus leader of Chancellor Angela Merkel’s Free Democratic coalition partner, said that public creditors may forgo repayment of some Greek debt, Die Welt newspaper cited him as saying in an article published today.
Time has come for European creditor governments to think about the costs and benefits of OSI for Greece, Pimco’s Mohamed El-Erian said Sept. 28 in a commentary in the Financial Times. The longer governments wait, the greater the likelihood of an unplanned, badly managed debt reduction, he said.