Eurozone talks in Brussels focus on Greece

Jean Claude Juncker: "I wouldn't exclude a kind of reprofiling"

Eurozone financial ministers are considering a "soft restructuring" of Greece's debts in return for progress on its privatisation plans.

Greece got a 110bn euro ($136bn; £94bn) bail-out in 2010, but there is growing acceptance that it was not enough.

On Monday, the ministers approved a 78bn euro bail-out for Portugal.

The talks in Brussels have been overshadowed by the arrest of IMF boss Dominique Strauss-Kahn in New York, for the sexual assault of a hotel maid.

The International Monetary Fund (IMF) has also approved 1.58bn euros in new assistance to the Irish Republic.

Nasty dilemma

The head of the eurozone group, Jean-Claude Juncker, said a "soft restructuring" or a "kind of reprofiling" of Greek debt had not been ruled out, but he eliminated the possibility of a "large restructuring".

The "reprofiling" that Mr Juncker alluded to would involve a delay in the repayments of Greece's debts agreed with its private sector creditors.

But the Greek Prime Minister Georges Papandreou has dismissed the idea of restructuring his country's debts.

"I know that analysts are talking about it and many people have already discounted it," he told a conference, according to the press agency AFP.

Debt burden overview

Country Debt-load* Deficit* Borrowing cost**

Greece

143%

10.5%

24%

Rep of Ireland

96%

32.4%

11.6%

Portugal

93%

9.1%

10.3%

Spain

60%

9.2%

3.3%

* in 2010 as a percentage of annual economic output (source: Eurostat)

** two-year government bond yield (source: Bloomberg)

"But we - the Greek government - European institutions, [and] the other eurozone countries all continue to believe that the costs far outweigh any potential benefits.

"So we stick to doing what we need to do anyway: create a primary surplus, get the economy growing again through structure reforms, use our assets to reduce our debt.

"All other discussions are a distraction and we refuse to be drawn into them," added Mr Papandreou.

Meanwhile, French Finance Minister Christine Lagarde and Ewald Nawotny of the European Central Bank have voiced opposition to a debt restructuring for Greece, though it is unclear whether they would also oppose a voluntary arrangement agreed with creditors.

Mr Juncker also indicated that progress by Athens on privatisation would be a precondition for any debt relief.

"Greece must still step up the implementation of its fiscal and structural reforms and start implementing the ambitious privatisation programme which is worth about 50bn euros and do so without any further delay," said Mr Juncker.

"This is very important part of reducing the debt burden of Greece as the 50bn euros is equivalent to about 20% of the GDP of Greece."

Mr Juncker's comments were later echoed by the European economic and monetary affairs commissioner, Olli Rehn.

European ministers face a nasty dilemma over Greece and other heavily indebted sovereigns.

Start Quote

Portugal has started on a road that has not worked for Greece”

End Quote

On the one hand, it is clear that markets do not believe Greece is capable of repaying its debts, and have in effect stopped lending to the country.

On the other hand, if Greece and other countries are offered debt forgiveness, this could trigger a banking crisis in Europe, as banks have until now avoided recognising any losses on most of the money they have lent to these governments.

"Reprofiling" may be a halfway house that buys Greece's time, while allowing its bank creditors to avoid registering the resulting losses in their accounts.

'Change course'

Billions of euros from the EU and the IMF should arrive in Lisbon by the end of this month, the BBC's Chris Morris in Brussels reports.

But attention has already turned back to the first bail-out - that of Greece, our correspondent says.

EU commissioner Olli Rehn said Portugal's loan was "an important step"

He adds that the message from ministers in Brussels is clear - Athens has to do much more to restructure its economy and push ahead with a massive privatisation programme.

There is also been plenty of discussion of a second Greek bail-out or moves to lengthen the amount of time Greece has to pay back its huge mountain of debt.

However, on Monday the finance ministers were urged to abandon "brutal austerity" as the answer to the Greek and Irish debt crises and instead give the struggling nations a chance to restore their nosediving economies.

In a letter to the ministers, John Monks, the general secretary of the European Trade Union Confederation (Etuc), said: "The Etuc calls on you to immediately change course."

Mr Monks added: "Brutal austerity, both in terms of public finance and in term of wages, is not working and is instead undermining the economies such as Greece and Ireland."

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