In a leaked letter, the EUObserver learned that German finance minister Wolfgang Schaeuble thinks that Greek bankruptcy is coming soon. He is arguing that more restructuring of their debt is necessary – and quickly.
The Leaked Letter
In the letter, which was addressed to European Central Bank President Jean-Claude Trichet and then leaked to the German press, he wrote, “We are standing before the real risk of the first full-blown bankruptcy inside the eurozone.”
He asked that additional aid be given to Greece and said that private banks should also be part of the bailout for Greek rescue.
Bailout on the Horizon
At the moment, a bailout is underway for Greece with finance ministers of the EU expected to have an agreement ready by June 20th. Mr. Schaeuble wrote that, “Any agreement on 20 June has to include a clear mandate – given to Greece possibly together with the IMF – to initiate the process of involving holders of Greek bonds. This process has to lead to a quantified and substantial contribution of bondholders to the support effort, beyond a pure Vienna initiative approach.”
In contrast, the ECB opposes such a restructuring of Greek debt. This is in part due to the bank’s purchase of large amounts of Greek bonds over the past year to try to stabilize the market. The ECB executive board member Lorenzo Bini Smaghi said, “Greece should be considered solvent and should be asked to service its debts. Restructuring should only be the last resort…when it is clear that the debtor country cannot repay its debts.”
