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European Stability Mechanism head rules out haircut for Greek debt
January 26, 2016 / 5:03 AM / 2 years ago

European Stability Mechanism head rules out haircut for Greek debt

TOKYO (Reuters) - The head of the European Stability Mechanism (ESM) on Tuesday ruled out a haircut for Greek debt but said extending debt maturities and deferring interest are options that officials could use to make Greece’s debt more manageable.

A man walks inside an arcade, where most shops have been closed since the beginning of the Greek financial crisis, in central Athens, Greece, October 20, 2015. REUTERS/Alkis Konstantinidis

Klaus Regling, managing director of the ESM, also said Greece must complete the first review of its progress on structural reforms before deciding on how to restructure its sovereign debt.

Reforming the ailing pension system is a prerequisite for the conclusion of the first review of Greece’s 86 billion euro bailout agreed in July last year, but the plan is likely to be painful because some Greek citizens will have to give up future entitlements, Regling said.

“The first review needs to be completed first, and that may take two months,” he said.

“There will be no haircuts. One can think about lengthening maturities and interest deferrals.”

Head of the European Stability Mechanism Klaus Regling leaves the European Commission headquarters after a meeting with Greek Prime Minister Alexis Tsiopras, the European Commission, the European Central Bank (ECB), the International Monetary Fund and the bloc's rescue fund in Brussels, Belgium June 25, 2015. REUTERS/Yves Herman

European officials may also consider steps to help Greece deal with an increase in debt servicing needs expected in 2022, Regling said.

The ESM, which has the power to lend to euro zone members and offer other financial assistance, owns around 45 percent of Greek debt and is at the centre of efforts to put the country’s sovereign debt crisis behind it.

Greece’s mountain of debt is expected to reach 187.8 percent of annual gross domestic product this year.

Greece has drafted a proposal to merge its six pension funds into one and possibly cut future main pensions by up to 30 percent. It plans to hold a vote on it in early February.

Prime Minister Alexis Tsipras’s government has a parliamentary majority of just three seats and the reform, which opposition parties and many pensioners and workers oppose, will test its resolve to implement actions agreed with international creditors.

Reporting by Stanley White; Editing by Chris Gallagher and Simon Cameron-Moore

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