Like ′troika′ for Greece, ′haircut is a dirty word′ for EU | Business| Economy and finance news from a German perspective | DW | 01.03.2015
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Like 'troika' for Greece, 'haircut is a dirty word' for EU

Greece's finance minister has said in a newspaper interview that even though Greece will need a "new arrangement" on its debt in the summer, he understood that international creditors would not entertain a debt haircut.

Yanis Varoufakis told German business daily "Handelsblatt", in an interview released online on Sunday and to be printed on Monday, that Greece would require a new international debt deal in order to meet obligations of almost 11.5 billion euros ($12.8 billion) between June and August. Saying that payment would be "impossible" without a deal going beyond this week's four-month extension to Greece's "bailout" program, Varoufakis added that Athens would not seek a "haircut" or write-down on its debts.

"No. Haircut is a dirty word. I've learned that much," Varoufakis said, when asked if he was hoping for creditors to write off some of Greece's debt. "Just as we don't want to hear the word 'troika' anymore, so our creditors don't want to hear the word haircut. I can understand that."

Protests in Greece

In Greece, the terms of the international loans are increasingly unpopular

One condition for the extension of Greece's international loans was that the three institutions monitoring economic reforms in Athens - the International Monetary Fund, European Commission and European Central Bank - should no longer be collectively referred to as the "troika."

Varoufakis said that there were "more intelligent solutions" than a write-down of Greek debt, naming as an example the idea of credit swaps. He suggested issuing sovereign bonds whose returns were tied to Greece's GDP figures: "Then our creditors would also have an interest in Greece's economy starting to grow again."

Schäuble a 'fascinating character'

Greece secured a four-month extension to its 240-billion-euro loans package this week, after some difficult negotiations in Brussels. The extension cleared the German parliament with a massive majority on Friday, but almost all of the "no" votes hailed from the Christian Democrats of Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble.

Merkel and Gabriel sitting together

Numerically, the Greek vote sailed through parliament, but not without some harsh words and long faces

Schäuble told "Bild am Sonntag" on Sunday that it was not yet clear whether Greece would need further help in the summer, but warned, "Whatever happens, we will attach very strict conditions."

Varoufakis conceded in the interview, when asked if he'd made many new friends since taking up his new job, that "the Eurogroup is not the sort of panel where friendships are quickly forged," but countered that his working relationships were far more "civil" than some media reports suggested.

Wolfgang Schäuble

Having played hardball with Greece in Brussels, Schäuble then had to sell the deal to the Bundestag

When pressed by reporter Gerd Höhler, the finance minister said that the same applied to Germany's Schäuble: "I find him a fascinating character, and I consider it an honor to have made his acquaintance. I value our open exchanges of opinion."

As GDP falls, 'debt mountain' rises

Greece's national debt currently stands at around 315 billion euros, or 176 percent of GDP. As a proportion of annual economic output, that's the highest level in Europe. The country's economic output has fallen by almost one-third since 2009, exacerbating Greek debt difficulties.

Even the late-2014 turnaround, with real GDP growth returning in Greece, was described by Varoufakis as, "an effect of deflation. Wages are still dropping and prices are falling. These are indicators of a serious depression."

'Real' GDP growth figures are adjusted for inflation, 'nominal' ones are not; Varoufakis said that a return to nominal GDP growth was the only way for Greece to start tackling its debt mountain.

"In any case, that's what we want to do. But for as long as the nominal GDP keeps falling, our debt mountain grows, despite the low interest rates we're paying. We must turn this around and the key to this is investment," he said.

The economics professor, who left a spot at a university in Austin, Texas, to join Syriza's election campaign, admitted his party's plan to combat tax evasion was not guaranteed success, but said that he saw one major advantage for Syriza.

"What gives me hope is that none of us belong to the old system. None of us has ever accepted a penny. In this sense we're independent," Varoufakis said.

msh/gsw (AP, dpa, Reuters)