A senior European finance official acknowledged for the first time on Tuesday that Greece may have to restructure its debts, a move which could blow Europe’s sovereign debt crisis wide open again.
Speaking at a seminar on the sidelines of an EU finance ministers’ meeting, Jean-Claude Juncker, the chairman of the 17-country Eurogroup, said there was a need to move towards what he called a “soft restructuring” of Greek debt.
He said Greece’s first priority had to be to raise 50 billion euros from the privatisation of state assets and use the money to pay down its debts, which are almost equal to 150% of GDP. In return, Juncker said, some form of restructuring of Athens’ debt might be considered.
“If Greece makes all these efforts, then we must see if it is possible to make a soft restructuring of Greek debt. I am strictly opposed to a major restructuring of Greek debt,” he said, the first time the prospect has been acknowledged since the debt crisis began 18 months ago.
The euro fell against the dollar and the price of German Bund futures rose slightly after the comments.
Greece and Spain both carried out successful auctions of treasury bills on Tuesday but perhaps most tellingly, the cost of insuring Greek debt against default rose.For weeks, senior European officials have dismissed the idea of a debt restructuring, concerned about setting a precedent and the knock-on impact on major European banks and the European Central Bank, all of which are large holders of Greek debt. There is also the risk that if Greece’s debt are revamped, Ireland and Portugal, both of which have also been bailed out by EU/IMF emergency schemes, may have to re-examine their debts.
Greece’s debt-to-GDP ratio, which the European Commission forecasts to rise to 166% next year, is by far the worst, but Ireland’s is set to increase to nearly 120% and Portugal’s is on target to hit 100%, while growth prospects in all three countries are dim.