Merkel: Greek 'haircut' could trigger 'domino effect'

BERLIN (AFP) - German Chancellor Angela Merkel warned a Greek debt write-down could spark a "domino effect of uncertainty" and scare off investors in the eurozone, in an interview released on Sunday.

Ms Merkel's comments to Focus news weekly come a month before elections in Europe's biggest economy and days after the woes of debt-mired Greece lurched onto the campaign trail.

"I am expressly warning against a haircut," she said, according to a pre-released copy of the interview.

"It could trigger a domino effect of uncertainty with the result that the readiness of private investors to invest in the eurozone again fall to nothing," she said.

The term haircut means a reduction in the value of debt bonds owed, with the effect that investors who have loaned money lose part of the eventual repayment of the amount owed.

Ms Merkel said Greece's debt and structural reforms would again be studied in 2014, as planned.

"Until then the country still has much to do and must continue consistently to implement its reforms," she added.

She pointed to a second-quarter return to growth in the eurozone and said there were also "positive developments" in Greece.

Finance Minister Wolfgang Schaeuble made waves last week, saying at a campaign event that Athens would need another rescue after 2014, seen as marking a shift in Germany's position.

Mr Schaeuble insisted however that creditors would not be forced to take more losses on their Greek holdings.

Ms Merkel faces elections for a third term on September 22 and the issue of Greece could prove contentious as German taxpayers feel they have already stumped up the lion's share of European bailouts.

The chancellor already sought to defuse the issue, saying a day after Mr Schaeuble's comments that any decision on a new aid package for debt-mired Greece would not come before next year.

Heavily indebted Greece has received two international bailouts in exchange for reforms including major public sector cuts in jobs, pay and pensions.

Register here to get free digital access to The Straits Times until Aug 9, 2015.
Comments