Euro chiefs rule out 'stupid' notion of Greek currency exit

Europe's inner currency cabal ruled out "stupid" calls on markets for 340 billion euros of Greek debt to be restructured, as speculation soared that the government in Athens could exit the currency area and with it the EU.

Luxembourg Prime Minister Jean-Claude Juncker dismissed growing claims a write-down would be needed after late-night talks among G20 eurozone states prompted by worries in the United States and at the IMF that saw Greek Finance Minister George Papaconstantinou summoned for what one EU official described as a dressing-down.

Juncker, the head of the 17-state Eurogroup of currency partners, said during urgent Friday night talks that restructuring was "an avenue we would never take."

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"We don't want to have the euro area exploding without reason. We were excluding the restructuring option which is discussed heavily in certain quarters of the financial markets," he said.

With yields on Greek government 10-year bonds having leapt to over 15 percent and on two-year bonds to over 23 percent on the secondary market, the boomerang nature of the Greek crisis suggests deep scepticism among investors that they will be repaid is not going to go away.

Juncker conceded that eurozone finance ministers would discuss a second re-negotiation of repayment terms on its year-old 110-billion-euro ($160-billion) bailout -- likely to stretch well into the next decade at least -- at their next scheduled talks in Brussels on May 16.

The result will leave ongoing EU efforts to close off a sorry chapter at a late-June summit looking ever more complicated.

Athens owes more than a year-and-a-half of its entire economic output, which markets consider unsustainable.

"We did not discuss an exit for Greece from the eurozone, we think that would be a stupid option," Juncker said after the closely-guarded talks at a castle here with Germany's Wolfgang Schaeuble, France's Christine Lagarde, Italy's Giulio Tremonti and Spain's Elena Salgado.

"We have ruled out any restructuring of Greek debt," Juncker underlined after the initially secret meeting also attended by the European Central Bank chief Jean-Claude Trichet, the EU's economic affairs commissioner Olli Rehn and Greece's George Papaconstantinou.

Juncker said Papaconstantinou was brought in "because we've been asked by US, by the IMF (to look at) issues concerning Greece."

While Europe struggles to put a lid on a lava-esque sovereign and banking debt crisis, the Greek government in Athens attacked reports of a eurozone exit unleashed by German news magazine Der Spiegel, which has close links to the EU's richest and most powerful government in Berlin.

Der Spiegel reported that Greece had raised the possibility of such an exit during recent meetings and that it would bring the subject up again at the Luxembourg talks.

It also said that Schaeuble's office had conducted an internal study of the consequences of a Greek withdrawal which concluded that Greece's new currency would likely depreciate by 50 percent compared to the euro, making a debt restructuring inevitable and provoking capital flight.

The Greek government said the idea it could withdraw or be kicked out was "completely untrue... provocative... (and) highly irresponsible."

An EU source said ministers from the big four continental European states warned during the meeting of a "difficult" path ahead as Greece battles a deeper-than-expected national recession following drastic public budget cuts and an ongoing firesale of state assets.

Barely one year after partners coughed up for Greece, nervous financial markets have already forced similar emergency rescues for Ireland and Portugal -- whose own 78-billion-euro deal was only announced in Lisbon on Thursday.

Spain had long been thought by experts to face an outside risk of being sucked in itself given a burst real-estate bubble, high exposure to losses among its banks and an unemployment rate running at one in five.

 

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