Sunday, July 26, 2015

Germany pledges flexibility on Greek debt restructuring but no write-down of debt

The German Chancellor, Angela Merkel said today that Germany would be flexible in negotiations on restructuring Greece's massive debt. However, she ruled out any write off as part of the restructuring.
Merkel said on German TV that "a classic haircut of 30, 40 percent of debt cannot happen in a currency union." Merkel said interest rates could be lowered, maturity of debt extended, as well as other relief. Another possibility would be to link payments on the loans to economic performance. Before any of this is discussed the creditors want to finalize the new bailout program. Merkel also said on TV:
“Greece has already been given relief. We had a voluntary haircut among the private creditors and we then extended maturities once and reduced interest rates...And we can now talk about such possibilities again ... Once the first successful review of the programme to be negotiated has been completed, then exactly this question will be discussed – not now, but then,”
Even though there was agreement on the broad outlines of the program last Monday by the 19 leaders in the zone, details still need to be worked out and the Greeks need to start implementation of policies passed through their parliament. The complete package will furnish Greece with 85 billion euros or $93 billion over three years.
Merkel insisted Schaeuble's idea of a five-year Grexit was no longer on the table. Some say that there is a split between Schaeuble and Merkel with Merkel disapproving of Schaeuble's even floating the idea of a temporary Grexit. Merkel claimed that Schaeuble's idea had been put on the table but the leaders of the euro zone rejected the idea: "Talking to Parliament on Friday, Merkel said the alternative to the new rescue package "would not be a time-out from the euro that would be orderly ... but predictable chaos."" The German Vice Chancellor Sigmar Gabriel and economy minister went further and criticized Schaeuble for even introducing the idea of a Grexit as a German proposal claiming it was not prudent.
Greek banks are scheduled to re-open Monday. Limits on withdrawals will be slightly increased, but there will still be a ban on foreign transfers and other capital controls will also remain in place.

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