‘Debt write-off in the public sector is a very unusual occurrence’

Governments of eurozone countries will only write off part of Greece’s debt in extreme circumstances, warned Klaus Regling, head of the European crisis fund, in an interview with the German business daily Handelsblatt on Monday.

The Director of the European Stability Mechanism (ESM), valued at 500 billion euros, told Handelsblatt that calls for the write-off of additional amounts of Greek debt held by the public sector will be carefully considered.
– A write-off in the public sector is a very unusual occurrence – Regling emphasized, adding that such a thing is only possible in extreme circumstances.
Private investors have agreed to write off a significant amount of Greek debt as part of the second financial aid package agreed upon earlier this year.

The so-called ‘public sector’, including the governments of other eurozone countries, has so far been spared from write-offs. Greece is trying to convince international lenders that it has achieved enough in terms of reforms and painful cuts in public spending to justify a new tranche of aid of 31.5 billion euros, necessary to meet its obligations in an orderly manner.

Eurogroup President Jean-Claude Juncker stated that he hopes finance ministers will approve the payment at the meeting on Tuesday. The EU and the International Monetary Fund (IMF) are at odds over solutions and financing of Greece’s growing debt, and one of the options under consideration is the write-off of part of the Greek debt owned by the public sector.

Regardless of a potential debt write-off, Greece should manage to reduce its debt by about one-third over the next 10 years, given the exceptionally low borrowing costs from the European crisis fund, which range from 1.5 to two percent, the fund’s chief emphasized.
He dismissed reports of a dispute among international lenders, the IMF, the European Central Bank, and the European Commission regarding key elements of the aid program for Greece.
– We are managing to reach a compromise – Regling emphasized, adding that he is confident that the IMF will continue to participate in aiding Greece.