Germany may soon Write-Off Greek Debt as it Softens Stance

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By EW News Desk Team | December 4, 2012 11:44 AM EST

Economy Watch

German Chancellor Angela Merkel, for the first time on Sunday, hinted that her government may ultimately accept a write-off of Greek debt in the future; but stated that Athens first had to fulfil their fiscal targets, including posting a budget surplus by 2014/2015.

"If Greece can get by on its income one day again without taking on new debt, then we must look at and assess the situation, "Merkel said in an interview with the Bild am Sonntagnewspaper, as cited by The Telegraph.

"That won't be the case before 2014/15 if everything goes according to plan," Merkel however noted.

The German Chancellor's statements came after her government had recently fought off an IMF attempt to persuade eurozone authorities to agree to a near-term haircut. German politicians also previously were publicly against any haircut on Athens' debt, saying it would break the terms of the country's bailout deal.

Merkel's signal of openness to eventual debt forgiveness marks "the end of denial," for Germany, said Carsten Brzeski, an economist for ING Groep in Brussels, in an interview withBloomberg.

"It's definitely a shift, but on the other hand, it's obvious," added Brezeski, who claimed that an debt writedown was an inevitable outcome.

Related: Why Germany Has No Choice But To Save Europe: Mohamed El-Erian

Related: Money Matters: Why Germany Wants to Keep the EU Together

Related: Germany Will Make An Example Of Greece: George Friedman

Opposition politicians have in the past accused Merkel of playing down the need for a write-down of Greek debt holdings, due to federal elections expected to take place next year. A write-down of Greek debt holdings would also see German taxpayers footing part of the bill - a politically risky scenario for Merkel, who recently struggled, though she ultimately succeeded, to persuade German lawmakers to release 43.7 billion euros in aid to Athens.

On Sunday, Merkel acknowledged that there was still much scepticism among her compatriots on whether Greece can really stick to their reform pledges, though she highlighted that rescuing Greece from economic collapse was in Germany's best interests.

"We have to see that many things are beginning to move under the new government of Mr Samaras - the budget deficit is sinking, as are unit labour costs," she said, as cited by the Financial Times, adding, "the idea that Greece would have to leave the euro against its will would still cost us (Germany) much more money than the path we've chosen."

 According to the Associated PressGreece's debt level will reach 190 percent of the country's economic output next year, if its debtors do not forgive at least some of the nation's debt. APalso reports that Greece has promised to achieve a budget surplus of 4.5 percent of its GDP by 2016, which would enable the country to start paying back part of its debt.

Related: Greece's Fallacious Four - The Main Culprits Of The Greek Tragedy: Mohamed El-Erian

Related: Is Greece Still Headed Down A Dangerous Dead-End Path? : Mohamed El-Erian

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The article was first published by Economy Watch.

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