Financial Times
October 23, 2011
Greek economists and business leaders have reacted strongly against the prospect of Greece taking a 50-60 per cent haircut on its sovereign debt, warning it could have dire consequences for the country’s recession-plagued economy.
There was no immediate comment from George Papandreou, prime minister, or Evangelos Venizelos, finance minister, both attending the European Union summit on Sunday – although the country’s debt managers have been in discussions with the International Institute of Finance on significantly increasing the 21 per cent haircut agreed with international lenders in July.
According to people with knowledge of the talks, Mr Venizelos is understood to support the new proposal, which they said had been “aggressively pushed by Germany in co-operation with the IIF”.
But Lucas Papademos, former vice-president of the European Central Bank and an adviser to Mr Papandreou, has warned that slashing the value of bondholders’ holdings by 50 per cent would reduce Greece’s overall debt by only 20 per cent and also delay economic recovery.
“The losses for Greek households and for private Greek bondholders would have a damaging impact on economic activity and tax revenues,” Mr Papademos said in an article published on Sunday in the Athens newspaper To Vima.
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