15 APR 2011
By Leigh Phillips
EUOBSERVER / BRUSSELS - Greek debt costs were bludgeoned on Thursday (15 April) after news filtered through markets that the German finance minister, Wolfgang Schaeuble, came out publicly saying that a restructuring of the Hellenic republic's debts may be required.
Separately, the European Central Bank has warned that such restructuring - default by another name - would threaten Greek democracy.
Insuring Greek bonds for five years jumped to 1100 basis points, a record for the heavily indebted country. The clobbering came after Schaeuble told Die Welt, a domestic newspaper, that "further steps" would be needed if analysis showed Athens was unable to service its debts.
"In June we will get a progress report. I'm expecting a detailed analysis on the debt sustainability of Greece, that will be done in consultation with the commission and the ECB," he told the paper. "If this report concludes that there are doubts about the debt sustainability of Greece, something must be done about it."
"Further steps will have to be taken," he added, stressing however that "restructuring could only take place on a voluntary basis."
A voluntary restructuring, taking the likely form of an extension of the payment period or a reduction in the interest rate or a combination of the two, would require the agreement of lenders.
The minister's comments came after reports filtered out of Germany on Saturday that a number of eurozone finance ministers had held a conference call on the subject with European Central Bank president Jean-Claude Trichet. According to a Der Spiegel report, the ministers suggested that Greece is not likely to meet its debt reduction targets and may need to restructure. However, the ECB chief would not consider the idea.
The frank words follow a spreading consensus that the Greek economy is in a tail-spin - GDP is predicted to slump by three percent in 2011 after a 4.5 percent decline last year.
Analysts say that an ever restrictive fiscal policy has combined with an inability to overcome ingrained tax evasion to produce a feeble economic situation where the country's debt pile is the only thing that is growing.
Despite the shock to the system, as early as last May, both Schaeuble and the German chancellor had mentioned the need to allow the "orderly" default of overburdened eurozone states.
At the time, Schaeuble spoke of "the possibility of a restructuring procedure in the event of looming insolvency that helps prevent systemic contagion risks."
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