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Europe mulls Greece 'haircut' in 2015

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BERLIN, Nov 25 AFP

November 26 2012, 02:58AM

Eurozone finance ministers are considering a possible "haircut" for Greece in 2015, a German newspaper reports, in a bid to reduce the recession-wracked country's debt mountain.

Other eurozone countries and institutions like the European Central Bank could be ready to discuss writing down a part of their Greek debt holdings to put Greece's debt on a more sustainable footing, said the Welt am Sonntag.

The issue was discussed at a secret meeting of ministers and officials in Paris on Monday, the paper said, without citing sources.

Such a haircut might be used as an added incentive for Greece to carry out the reforms required in its second aid package, which runs out in 2014, according to the Welt am Sonntag.

Germany has been firmly opposed to taking a loss on its holdings of Greek debt, unwilling to ask German taxpayers to foot the bill for keeping Athens in the eurozone.

The ECB has also ruled out such a move, saying it is tantamount to financing Greece directly, strictly forbidden by its founding treaties.

But the Spiegel newsweekly reported that the ECB, as well as the International Monetary Fund, now considered a haircut unavoidable.

Nevertheless, Joerg Asmussen, a member of the ECB's executive board, dismissed the plan.

"To close the financing gap, we need a package of measures that would include, among other things, a clear reduction of the interest rate on aid and a debt buy-back program for Greece," Asmussen told the Bild newspaper.

"A haircut does not belong to this (package)," the German central banker said in comments to appear in Monday's edition of the newspaper.

By writing off half of their Greek debt holdings, eurozone governments and institutions could drive down Greece's debt to 70 per cent of output in 2020, compared to 144 per cent, wrote Spiegel.

Eurozone ministers meet on Monday for their third effort to agree on unlocking a 31.2 billion euro ($A39 billion) slice of aid for Greece as it teeters on the verge of bankruptcy.

Both Welt am Sonntag and Spiegel wrote that the haircut issue would not be decided at Monday's talks.