By John O’Donnell and Balazs Koranyi
Germany’s finance minister conceded for the first time on Thursday that a write-off of some of Europe’s loans to Greece might be needed to get the country’s debt to a manageable level, but in the same breath ruled out such a step.
Presenting a paradox that is set to bog down last-ditch efforts to bail out Greece, Wolfgang Schaeuble said that European rules meant that writing off some loans to Greece was not doable, however desirable it might be for Athens’ finances.
The comments by Schaeuble appeared to suggest that he does not believe Greece’s financial problems can be solved within the euro zone and could weigh on negotiations as they enter a crucial phase.
“Debt sustainability is not feasible without a haircut and I think the IMF is correct in saying that,” Wolfgang Schaeuble told a conference in Frankfurt, before adding: “There cannot be a haircut because it would infringe the system of the European Union.”
Greece’s leftist government led by Prime Minister Alexis Tsipras has put debt reduction at the heart of its negotiations with the euro zone for further finance in return for reforms.
But it faces stiff resistance not only from Germany but other countries who have stuck to the medicine of ‘austerity’ or spending cuts to heal their public finances.
Speaking at a conference held by the Bundesbank, whose president had earlier said that Greece’s cash-strapped lenders should not get any extra central bank support, Schaeuble delivered a similarly tough message.
He said that a reprofiling of debt was another possibility “if you cannot do a haircut” but scope to do so was limited after an earlier big restructuring of Greece’s debt mountain.
“I think the leeway we have … is very low,” he said, adding that he was ‘sceptical’ that much could be done.
Euro zone finance ministers gather in Brussels on Saturday in an effort to reach a deal with Athens.