26 November 2012

Reuters: German hint of Greek debt relief raises euro hopes

Wolfgang Schäuble indicated that Berlin could eventually agree to write off some of the money it has lent Greece, in order to make its debt sustainable. The idea, aired publicly this month by German central bank chief Jens Weidmann, could be a game-changer in the currency area's crisis since it offers for the first time the prospect of sharing out losses to make the debt-crippled state viable in the long run. But it is politically explosive in Germany, where many lawmakers, jurists and commentators fiercely oppose any idea of a "transfer union" in which wealthier northern EU states would subsidise or underwrite weaker southern partners.

Schäuble ruled out any debt forgiveness at a wider meeting of eurozone finance ministers, leaving some of his interlocutors baffled. In public he said an official debt write-off would be illegal, and Germany would no longer be able to lend money to Greece.

Eurozone ministers are considering lending Greece more money to buy back its own debt at a discount, reducing interest rates on official loans and extending their maturities, granting an interest repayment holiday, and passing profits on ECB purchases of Greek bonds back to Athens. The moribund market in Greek government bonds has twitched back into life at the prospect, with prices rising to about 35 cents on the euro in anticipation of a possible buy-back.

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