Orphanides: Greek haircut was a "terrible mistake"

Reuters
December 5, 2011

It was a "terrible mistake" to ask private holders of Greek government debt to forgo half of their investment, European Central Bank Governing Council member Athanasios Orphanides said on Monday.

Sources told Reuters at the weekend that Germany was prepared to soften language in the euro zone's permanent rescue fund that compels bondholders to accept losses in exchange for much stricter budget rules.

Orphanides told Cypriot lawmakers that the decision to write down Greek debt was wrong and a "tragic" mistake which led to spikes in bond yields of sovereign debt throughout the euro zone.

"It was a terrible mistake," Orphanides, who is also the governor of the Central bank of Cyprus, told parliament's Finance Committee.

"By forcing the impairment of any state bond we have triggered concern internationally of all state bonds in the euro zone and that's one of the key reasons we have a problem," he said.

"It is because of this tragic mistake in the euro zone that the yields of so many bonds are so high," Orphanides added.

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