Schäuble pushes for Greek debt restructuring

German Finance Minister Wolfgang Schäuble wants holders of Greek debt to extend their credits by seven years, according to a letter he sent to eurozone partners seen by the media on Wednesday.

Schäuble pushes for Greek debt restructuring
Photo: DPA

In the letter, which is dated Monday and was sent to the European Central Bank, the European Commission and the International Monetary Fund, Schäuble calls for “a quantified and substantial contribution of bondholders to the support effort” for Greece.

“Such a result can best be reached through a bond swap leading to a prolongation of the outstanding Greek sovereign bonds by seven years,” Schäuble wrote.

German authorities have insisted on private sector involvement in any future Greek rescue plans but had not given details on what they expected until now.

The finance minister also evoked “a real risk of default within the eurozone” if Greece is not granted the next slug of aid contained in an initial rescue plan worth €110 billion ($160 billion) backed by the European Union and International Monetary Fund.

He added that “I see a need to reach agreement on a new programme for Greece to … prevent a bankruptcy. I am aware that discussions on private sector participation continue, but I am sure they will result in a constructive solution before our meeting on June 20,” Schäuble said.

He referred to a gathering of eurozone finance ministers.

The ECB opposes forcing private investors to participate in a new Greek rescue plan, because it would be tantamount to restructuring the country’s debt, which could have serious consequences for the eurozone as a whole.

But ECB officials have indicated they could live with a roll over of Greek debt on a voluntary basis, which would involve banks and other investors agreeing to buy new bonds to replace ones set to mature in the next couple of years.


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Brussels warns Italy to rein in public spending amid pandemic

Most EU member states should continue to invest to support the continent's economic recovery, but heavily-indebted Italy should rein in public spending, the European Commission warned on Wednesday.

Italian Prime Minister Mario Draghi
Italian Prime Minister Mario Draghi expects the country's GDP to recover in the coming year. Photo: Alessandra Tarantino / POOL / AFP

“The economy is bouncing back from the recession, driven by a rebound in demand across Europe,” EU executive vice-president Valdis Dombrovskis said.

“But we are not out of the woods yet. The economic outlook remains riddled with uncertainty,” he said, warning that the coronavirus is still spreading, prices are rising and supply chains face disruption.

Despite these unpredictable threats, European officials predict a strong recovery, and want eurozone governments to maintain their “moderately supportive fiscal stance” to support investment.

EXPLAINED: How Italy’s proposed new budget could affect you

Italy, however, remains a worry. Its public debt passed 155 percent of its GDP last year, and Brussels is worried that it is still budgeting to spend too much next year.

“In order to contribute to the pursuit of a prudent fiscal policy, the Commission invites Italy to take the necessary measures within the national budgetary process to limit the growth of nationally financed current expenditure,” the commission report said.

The commission did not say by how much Italy’s spending plans should be reduced, and its recommendation is not binding on the government.

The European Union suspended its fiscal discipline rules last year, allowing eurozone members to boost their public spending to help their economies survive the Covid-19 pandemic.

But the European commissioner for the economy, former Italian prime minister Paolo Gentiloni, said governments should now “gradually pivot fiscal measures towards investments”.

“Policies should be differentiated across the euro area to take into account the state of the recovery and fiscal sustainability,” he said.

“Reducing debt in a growth-friendly manner is not necessarily an oxymoron.”

Italian Prime Minister Mario Draghi, a former European Central Bank chief, has said Italy’s economy is recovering after the pandemic-induced recession.

Draghi forecast economic growth this year of “probably well over six percent” in a statement on October 28th.

Italy’s GDP rate grew by 2.6% in the third quarter of 2021.

While economists don’t expect Italian GDP to bounce back to pre-pandemic levels until 2022, ratings agency Standard & Poor has revised its outlook for Italian debt from stable to positive.