Wednesday

8th Jul 2020

Greek haircut is necessary evil, EU commissioner says

  • Almunia was economics commissioner until 2009 and is currently in charge of competition (Photo: ec.europa.eu)

The EU may have been wrong in asking private investors to write off Greek debt but it is too late to change track now, EU competition commissioner Joaquin Almunia has said.

The Spanish economist made the remarks at a debate hosted by the European Policy Centre, a Brussels-based think tank, on Monday (16 January) - two days before Greek negotiators were supposed to fly to Washington to restart talks on the so-called 'haircut.'

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"It's being discussed at many levels if the very idea of a private sector involvement was the right one or not - but now that it has been launched, we have to reach an agreement. Any other solution would be even tougher and riskier, that's why we need to find a happy end to these negotiations," he said.

EU leaders in October opted to loan Greece another €130 billion but only if it agreed with private bond-holders on a "voluntary" write-off of half its debt.

The clock is ticking before €14.4 billion of debt matures in eight weeks time. If there is no deal, Greece faces a "disorderly default" with unpredictable consequences for the eurozone.

Talks with the International Institute of Finance (IIF) - which represents private investors - broke off on Friday amid disagreement on the interest rates of new bonds. They are set to resume on Wednesday, a Greek spokesman said.

"It is essential in order to finalise the voluntary [private sector] agreement that support be given by all official parties in the days ahead," the IIF said in a statement.

For his part, Greek spokesman Pantelis Kapsis said on Monday that "this is a critical time for the Greek economy" and that "the negotiations are very difficult."

Apart from the IIF talks, Athens is also bracing itself for another inspection by officials from the EU, the European Central Bank (ECB) and the International Monetary Fund next week.

Responding to speculation that the Greek haircut will be less than 50 percent and that EU authorities will make up the rest, ECB chief Mario Draghi said last Thursday: "One thing is clear, namely that Greece has to bring its fiscal action back on track. It has to complete its structural reforms and basically has to move forward on the fiscal consolidation front."

Draghi also questioned the rationale of private sector involvement.

"[It] was, I would say, an understandable political response to the indignation of the people of Europe in the face of selfish behaviour by some governments, when making their fiscal policy and their budgetary policy. But this had several, serious unintended consequences, and we are living through them now."

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